Displaying items by tag: income

Tuesday, 16 May 2023 08:02

CDs vs Annuities

In an article for BankRate, Karen Bennett discussed whether CDs or annuities are the best option for someone saving for retirement. Both are low risk compared to other options, however there are some important differences.

A CD pays a guaranteed rate of return for a certain amount of time, but the funds are completely locked up for the entire term at which point the principal is returned. However if the money needs to be accessed early, then there is likely to be a penalty which negates the earned interest and even potentially cuts into the interest. 

In contrast, an annuity is a contract that guarantees a certain amount of income for an upfront cost. Typically, annuities last for the remainder of one’s life, or it can be for a pre-set length of time. Typically, the counterparty in an annuity is an insurance company. Annuities also come in many forms. They can be structured to allow one to build wealth in a retirement account, or it can be like life insurance and pay out a benefit upon death. 

Some differences to consider are that annuities typically pay higher rates than CDs, offer similar amounts of security, higher taxes on income from CDs, and higher penalties for annuities if you need to access your principal. 


Finsum: Annuities and CDs are low risk ways to build wealth for retirement. Here are some differences to consider. 

Published in Wealth Management
Sunday, 23 April 2023 06:10

Why Annuities Have Value for Portfolios

In an article for Kiplinger, Martin Nuss discussed the benefits of owning annuities. First, it’s important to distinguish between the many types of annuities. For example, savings-oriented deferred annuities offer tax benefits and guaranteed principal. In contrast, income-based annuities function similar to private pensions and provide guaranteed retirement income. 

A pressing concern for future retirees is that social security benefits are not going to be sufficient to meet most people’s retirement needs. And, this is before accounting for the aging population and shortfall between revenue and expenditures. 

Annuities are a great solution, because it lets you save and grow money without worrying about taxes. While younger investors have risk tolerance and are willing to stomach the risk required to generate strong returns, older investors have to be more mindful of risk. Therefore, there is more demand for less volatile investments like annuities. 

For investors with less risk tolerance, fixed-rate annuities are a good choice. They function like tax-deferred bank CDs, albeit with higher returns. Annuities aren’t federally insured but tend to be offered through reputable insurance companies. Fixed-indexed annuities are ideal for retirees who are looking for short-term cash flow, while they wait for their pension or social security payments to begin. 


Finsum: Annuities can offer so much value to investors to help them reach their financial goals. Yet, it can be difficult given the variety of offerings. 

 

Published in Wealth Management
Friday, 31 March 2023 05:03

Annuities Are an Antidote to Volatility

Given increasing volatility in financial markets, it’s not surprising that many investors are feeling nervous. According to Corebridge President Bryan Pinsky, annuities are one option for investors to reduce the volatility in their portfolios and prevent them from making rash decisions. His perspective was shared in an article by Allison Bell for ThinkAdvisor.

Corebridge Financial is ranked third in terms of individual annuity sales at $20 billion and was previously known as AIG Life & Retirement. He believes that negative emotions during volatile markets often lead investors to sell low and buy high. 

In terms of his thoughts on the current market, he said that the doubling in the yield of the 10-year Treasury note in 2022 was historically unprecedented. It’s also resulted in annuities paying out higher rates which has led to a surge in demand for these products. 

He says that the elevated market volatility since the end of 2021 have validated the use case for annuities. He also doesn’t believe it’s too late to seek downside protection and that annuities can be an integral part of any retirement portfolio with recommended allocations between 10% and 30%.


Finsum: According to Corebridge’s Bryan Pinsky, market volatility has proven why annuities are an essential part of any investors’ financial plan. Additionally, he believes that buying conditions for annuities remain attractive.

Published in Wealth Management

According to a new report from LIMRA, the demand for annuities within employer-sponsored retirement plans will “grow exponentially” over the next two years. The insurance trade association noted in a press release that it anticipates “greater adoption of in-plan guarantees in late 2023 and 2024.” LIMRA noted that just 14% of defined-contribution plans currently offer annuities with income guarantees even though 70% of workers say they want some sort of guarantees that only annuities can offer in their retirement plans. The topic of annuities as an option in 401(k)s has been discussed for years. Supporters say that annuities offer benefits that workers want including guaranteed income. But detractors contend that annuities are too complicated for plan sponsors and employees to understand. In addition, if an annuity provider becomes bankrupt, employers could fear being liable under their fiduciary duty. So why does LIMRA anticipate the market exploding? Their press release mentions the SECURE Act 2.0, which President Biden signed into law at the end of last year as the reason. However, the first SECURE Act signed by President Trump in December 2019 may be the true driver of demand as it expanded safe harbor protections so that retirement plan sponsors could offer annuities without fear of being held legally responsible as part of their fiduciary obligations. It also allowed workers who change jobs to keep their annuity guarantees without incurring early surrender penalties.


Finsum:Insurance trade association LIMRA expects the demand for annuities in employer-sponsored retirement plans to grow exponentially due to the passage of the SECURE Act.

Published in Wealth Management
Monday, 09 January 2023 16:44

New Guidance for Comparing Retirement Annuities

Based on the results of a recent Invesco retirement income study, 83% of people with defined contribution savings plans expect it to be their largest source of income during retirement. However, some data is showing retirement portfolios were down as much as 23% last year. When you add in inflation, which is making everyday costs expensive, investors may not be able to rely on their 401k for income this year. That’s why John Faustino, the head of Broadridge’s Fi360, is recommending advisors and their clients consider the use of annuities as guaranteed income solutions in DC plans through Broadridge’s retirement income consortium. The consortium includes leading annuity providers such as Allianz, Nationwide, and TIAA, as well as data and analytics firms that work with advisors, such as Fi360, Cannex, and Fiduciary Insights. In an interview with planadviser, Faustino noted that the consortium recently “published criteria for comparing retirement income solutions contained within what we call our prudent practices, which is a collection of legislation, regulation and case law.” He also mentioned that they’re launching a software tool based on this methodology later in the year. The criteria are “designed to help advisers document their reasoning for selecting a particular retirement income solution for a plan and to help them monitor their selections and the overall process.”


Finsum:Broadridge’s retirement income consortium, made up of annuity providers and data firms, published criteria for comparing retirement income solutions such as annuities.

Published in Wealth Management
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