Interest Rates

Interest rates represent the cost of capital or what you pay to borrow money. A detailed definition of interest rates is beyond the scope of this glossary. What is important to remember is that interest rates are critical components of virtually every financial product you consume. This is especially true with annuities because, in general, insurance companies manufacture annuity products through a combination of bonds and derivatives. As a result, interest rates are the raw material of all annuity types.

John Hancock Unveils an Inflation Protected Annuity

John Hancock Annuities announced the release of a new fixed annuity product that provides owners with inflation protection. The “Inflation Guard” product offers principal protection through a fixed interest rate that is guaranteed through the first year of the contract. After the first year, the interest rate is floating. This floating rate is based on a rate of inflation that is derived from the year-over-year change in the Consumer Price Index-Urban or “CPI-U.” A...

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Why Low Interest Rates Have a Silver Lining

As discussed in a recent post, ultra low interest rates are an enormous burden for retirees. Low interest rates make it difficult to produce reasonable levels of yield and increase the present value of future liabilities (retirement spending is a liability).

One positive associated with low interest rates is the relatively low cost of debt. This is clear to anyone who has or will consider refinancing a mortgage. The problem is that, in general, retirees are...

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There is no Free Lunch for Retirees when it Comes to Investment Risk

Retirees have every reason to be an extremely risk averse bunch. After all, most of them have an immediate or near-term need to draw income from their assets. This need for income should result in zero tolerance for investment risk or reduction in value of the assets that are intended to produce the retirement income...

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Why Your Retirement Just Became More Expensive

The extreme gyrations in the stock market over the past week create great headlines and quite a bit of trading activity. Equally if not more important for retirees, however, is the related action in bond markets.

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