Displaying items by tag: income

The bond market has had extreme difficulties as of late, and most investors are looking to annuities for an income alternative, but what questions should they be asking themselves. The first is what is the term of the annuity? Duration and commitment play a pivotal role in how you are assessing the asset. How much is the surrender charge? Look for de-escalating surrender charges if you may get out early. How does your annuity generate interest? Many indexed annuities can be linked to the markets like the S&P 500 which can give stock exposure without as much risk. Finally, can you withdraw early, and what are the liquidity constraints? You may want to be able to have a flexible withdrawal amount in case of emergencies.

Finsum: With more investors turning to annuities, it’s critical advisors understand why they are using them as a financial vehicle.

It's never too early to begin thinking about tax-loss harvesting and there is a ripe situation in the bond market. The yield curve has been on the rise due to Fed tightening and inflation. Rising yields mean lower bond prices and ETF owners have taken a bath. Selling off those funds right now could give you a tax advantage later this year. However, investors should get out of the fixed income route altogether. Markets are beginning to show signs of a recession or straight volatility so replacing your bond ETF with another fixed-income ETF could help in the case of a recession. Or if bond prices begin to take off it's a good option to have some skin in the game.

Finsum: The wash rule makes harvesting losses in equity markets a bit difficult, but the plethora of bond funds and options gives investors better ability to harvest losses now.

Most think of millennials and they compartmentalize them into 3 categories: fee minimizers, crypto /alternative investors, or meme traders. However, a recent poll shows they have a strong desire for traditional income products. Over 82% of more affluent millennials are concerned with finding income products for retirement, which is almost 30 percentage points higher than Gen X. Additionally, almost a quarter of the poll were willing to purchase an annuity in the next quarter, and half of those were millennials. Many of these affluent millennials are looking to income products because they are skeptical that social security will be there for them in retirement.

Finsum: Millennials are bucking conventions and looking early to secure income products like annuities.

There has been an explosion of annuity interest by investors, a lot of that is being driven by the low-interest-rate environment and increased uncertainty more broadly. Health is a key factor in an annuity purchase, but a healthier individual will receive lower payments so they may want to delay their annuity purchase. If you are seeking a deferred annuity, however, then you may want to purchase it sooner and annuitize later in order to grow the value if it has a guaranteed interest. Finally, inflation can eat at the value of a fixed annuity which means it might devalue your payment stream later on. The optimal purchased time for a fixed annuity is generally a couple of years post-retirement: 70-75. A deferred annuity should be purchased much younger, the optimal age being in the mid-40s.

Finsum: Consult a financial advisor as to which annuity timeline makes the most sense for your portfolio.

There has been a serious increase in interest in annuities during the pandemic, but overall the product suffered as retirements got put on hold. Bond market disruption has increased that excitement and Legal and General, a British provider, is expecting a big turn around with the pandemic in the rear view. They have already seen a 5% uptick in since the onset of the pandemic. A full recovery is underway and retirement is back on the agenda for many investors, which makes annuities attractive again. Additionally data around savings rates and flows are trending positive for annuities as well.

Finsum: Annuities are just the better alternative for many retirees when the interest rates and inflation are in the position they are now.