Why Financial De-Risking May Leave Consumers at a Loss
The term de-risk has been appearing frequently in recent financial news.
General Motors’ recent decision to offer lump-sum...
In contrast to a fixed annuity, the key features of a variable annuity can fluctuate (they are “variable”) during the accumulation period and during the payout phase. Also in contrast to a fixed annuity, the variable annuity contract holder assumes much of the investment risk. With a variable annuity, the insurance company provides the contract holder with the ability to determine how his or her premiums are invested. One investment option is a variable account which typically consists of equity, bond or money market mutual funds. The other option is the general account of a variable annuity which provides a guaranteed return. The contract holder decides how much risk or variability they want to tolerate by allocating premium payments among the general and variable accounts. The amount of money accumulated and the amount of income during the payout phase are determined by the returns of these accounts. With a variable annuity: 1) the money can go in as a single premium payment or a series of payments; 2) the money is invested at a variable or non guaranteed rate; 3) payments are variable and can begin immediately or at some future date.
The term de-risk has been appearing frequently in recent financial news.
General Motors’ recent decision to offer lump-sum...
Mark J. Warshawsky is Director of Retirement Research at Towers Watson.
Dr. Warshawsky served as assistant secretary for economic policy at the U.S. Treasury Department from 2004-2006 and he has held senior level economic research positions at the Federal Reserve Board, the Internal Revenue Service and...
Warren Buffett’s most recent shareholder letter focuses on the merits of productive assets such as equities in light of the current low interest rate environment and the potential for future inflation.
Buffett’s view is that although productive assets are variable and volatile, they are more likely to preserve future purchasing power than the fixed or currency-based alternatives.
Buffett’s advice would seem to provide a key...