Longevity Risk and Portfolio Protection Without a Variable Annuity
Two of the most daunting risks faced by the majority of retirees are:
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Annuity
An annuity comes in many forms, but a simple definition is that an annuity is a contract that converts a sum of money into a series of periodic payments for an agreed upon period of time. An annuity can be thought of as a financial vehicle that converts a pool of money into a stream of income. Annuities are most useful in addressing the financial planning needs of people in or approaching retirement. Annuities are unique in the financial world because they can provide protection against the risk or outliving one’s assets (longevity risk) by guaranteeing income payments in perpetuity or any other selected amount of time. Annuities can be viewed as a type of personal pension plan. Social Security is similar to an annuity in that money contributed over the course of one’s working years is converted into a series of periodic payments that provide income during retirement.
The Dangers of Buying an Annuity When Interest Rates are Low
Interest rates are the raw material used in manufacturing annuities. Rates are currently very low--the 10 year treasury note is hovering around 3.4 percent and 30...
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Tax Free Long Term Care Payments from an Annuity
The Pension Protection Act of 2006 has a provision that will allow for tax free long-term care payments from an annuity product. The law will also allow for Section 1035 Exchanges of older annuity products into the new hybrids. The combined or "hybrid" product has been in development within insurance companies over the past several years. The anticipated launch date for these new products is January 1 2010--the date that the provision in the Pension Protection Act is intended to go into effect...
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U.S. Life Insurance Industry in Stable Condition
The U.S. life insurance industry--which includes companies that provide annuity-based products--has stabilized somewhat during 2009. Conning Research predicts net after tax statutory income of $16 billion in 2009. This is despite $20 billion in capital losses for the industry in 2009. Annuities were the most painful and volatile segement for insurers, producing a $4 billion loss in the combined 2008 - 2009 period. Much of this came from losses on living benefit guarantees associated with...
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401k Participants Can "Replace a Chance with a Guarantee"
Larger 401k accounts (in excess of $200,000) dropped 25% on average in 2008. 95% percent of participants in defined contribution style 401k plans would pursue a "cash out" option if offered--essentially taking the lump sum of accumulated assets rather than an option to turn that pool of assets into a guaranteed stream of income . Only 25% of participants in defined benefit pension programs would accept the same lump sum "cash out" offer.
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