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.

Sales of Indexed Annuities Rise and Record Projections for 2009

Turmoil from the financial crisis drives record sales in fixed annuities. Uncertainty in equity markets has fueled part of the growth. The guarantee in indexed annuities is the defining difference from variable annuities, enticing customers seeking protection against further losses. Sales of indexed annuities often go up when sales of variable annuities go down or when certificate of deposit rates — a competitor for annuities — are unfavorable, Moore said. Total 2008 indexed annuity sales were...

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Annuity

Certificate of Deposit

Indexed Annuity

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Financial Crisis

Annuity Sales

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Annuity

Certificate of Deposit

Indexed Annuity

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Financial Crisis

Annuity Sales

Vanguard Applies for Guaranteed Lifetime Withdrawal Benefit (GLWB) Rider

Vanguard is seen expanding variable annuity features with an SEC application for a guaranteed lifetime withdrawal benefit ( GLWB ). The precise cost of the rider, which can apply to one owner or joint owners, and the payout rates at various age bands were left blank in the application, although Vanguard provided an example that set the rider cost at one percent of the income base. The minimum initial payment is $5,000 and a $25 annual fee is assessed when the account value drops below $25,000...

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Vanguard

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Withdrawal

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Annuity

Guaranteed Lifetime Withdrawal Benefit

Variable Annuity

Income

GLWB

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Guaranteed Lifetime Withdrawal Benefit

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How do annuities protect against inflation?

This is a super important question and consideration--particularly given the financial crisis and our current economic environment. There are some comments on this topic throughout the site including this blog post.

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