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  • Archive for the ‘Annuities’ Category

    Saving in your 60’s, 70’s and beyond: Strategizing for the future

    Friday, February 25th, 2011

    America Saves Week 2011: Financial To-Dos for the Decades

    February 20th marks the beginning of America Saves Week—a great opportunity to examine your finances and see where you can pinch a couple more pennies to really make it count. But savings is not a “one size fits all” activity. Your savings and financial plans are different depending on your what stage you are at in life.

    This week WISER will break down how to save for the different decades of your life, so that you can track what you should be doing now and in the future. Follow our blog this week to see how you can save throughout the decades!

    Saving in your 60’s, 70’s and beyond:

    Retirement planning isn’t just about saving for the future, it’s also about how you will eventually spend your money once you are in retirement. Many American use their retirement assets too quickly and later find out they have to cut back on necessities because they cannot afford a decent standard of living. But even if you have stayed the course and feel confident in the amount of money you have put towards your retirement over the years, it is still important to plot out what your retirement financing strategy will be. How much money will you need every month? Will you have additional income in the form of Social Security or pensions in addition to your savings? Even in retirement, it is still important to maintain a savings mentality so that you maintain your finances well into the future.

    At this point in life, you should continue to invest your retirement assets, living off a small percentage each year, and consider annuitizing all or a portion of your retirement assets, or a little bit of both. Selecting an annuity can be an overwhelming process for some, but there are a lot of great resources to help you figure it out.  And it’s worth taking the time to learn more, because keep in mind, by buying an annuity, you will be providing yourself with guaranteed income payments for the rest of your life.

    We’ve pulled together some helpful information to explain annuities and how to select the right one for you:

    Annuities and Risk: An Annuities Q & A

    Wednesday, October 29th, 2008

    In the current economic climate, we’re all concerned about our retirement security and our investments, such as annuities. Brokers and agents say they’re receiving a flood of calls about the security of annuities, and that many customers are considering cashing out their variable annuities. This drastic action can be unnecessarily costly: you may have to pay surrender charges as high as 10%, and if you’re younger than 59 and a half, you will be responsible for various tax liabilities and penalties. This morning’s Wall Street Journal offered the following
    Q &A on annuities in the article “Are Annuities at Risk Now? Some Answers:”

    Are Annuities at Risk Now? Some Answers
    Tuesday October 28, 11:08 pm ET
    By M.P. McQueen

    Q: How do annuities work?

    A: Annuities are tax-deferred insurance contracts bought once, or with a series of payments, that offer the owners either a lump sum or a series of payouts after an accumulation period. Unlike other retirement vehicles such as an individual retirement account or a 401(k), annuities have no legal limits on tax-deferred contributions.

    Q: What’s the difference between fixed and variable annuities?

    A: Fixed annuities earn a guaranteed interest rate during a certain period. They are backed by assets in an insurance company’s general account, usually bonds. Fixed annuities depend entirely on the financial soundness of insurers, which are regulated primarily by state insurance departments.

    Variable annuities can also come with guaranteed benefits, such as a death benefit and a minimum return, riders for which the buyers generally pay extra. In other ways, though, they’re quite different: A portion of deposits go to the insurance company to cover administrative costs and guaranteed benefits; the rest is invested in a portfolio of mutual fund-like investments. These accounts are separate from the rest of the insurance contract and belong to the annuity owner, so they’re not as vulnerable to the insurer’s fate.

    Variable annuities, however, are more exposed to market risks. If annuity owners’ investments perform well, there’s the potential upside of a bigger payout. But if they do poorly, as many have recently, income falls, too. Investors can shift their fund holdings, however, to lower-volatility choices such as bond funds.

    Q: How have annuities been affected by recent market conditions?

    A: Many variable annuities have gone through the same gut-churning volatility as mutual funds in general. Partly as a result, while sales fixed annuities rose 39% in the first six months of 2008 from a year earlier, sales of variable annuities overall declined 6% in the same period, according to LIMRA International.

    Q: Should I be worried if the share price of my insurer declines?

    A: Not necessarily. In some cases, analysts say, publicly traded insurance companies’ stock prices have plunged partly because of their efforts to raise capital. And while raising capital can dilute existing shares, it also improves an insurer’s ability to pay claims. Hence, a decline in the stock value of a company doesn’t always spell immediate trouble for annuities or life-insurance policies.

    Q: Should I worry if the financial-strength rating of my insurer declines?

    A: Possibly. Financial-strength ratings, supplied by rating agencies, are an evaluation of the ability of a company to make good on its guarantees. A slip from an excellent financial-strength rating from one of the five agencies — Fitch Inc., A.M. Best Co., Moody’s Investors Service, Standard & Poor’s or — to a slightly lower rating that is still in the secure range isn’t cause for alarm, experts say. But multiple downgrades are a good reason to keep an eye on the company.

    Through Sept. 30, 6.5% of the life/annuity and health-insurance companies followed by rating agency A.M. Best had been downgraded, though most remained in the “secure” range, meaning they are still regarded as financially sound.

    Of course, buyers of new annuities should only buy from top-rated companies, consumer advocates say. You can find information on financial strength of companies licensed in your state by linking to your state’s insurance department, at, the Web site of the National Association of Insurance Commissioners.

    Q: What happens when a company founders?

    A: State regulators usually monitor struggling companies and work with them to try to get additional capital — or to sell the company to a stronger insurer that can make good on all of its claims. State receivers, who include the state insurance commissioner of the company’s home state, often help find other insurers to take over the annuities from the troubled company. Annuity owners then make payments to the new company and collect payouts from it. Otherwise the terms of the annuity usually remain the same.

    Q: What happens if no insurer wants to take over the annuity contracts of a failed insurer?

    A: If an insurer is declared insolvent by a court and is liquidated, state laws require companies to pay annuity (and insurance policy) owners first and in full before paying claims of other creditors. State guaranty associations — funded by other insurers — then make good on the annuities and policies. Death benefits, for instance, are often protected up to $300,000. Cash values are often protected to a maximum of $100,000. (See, the National Organization of Life and Health Insurance Guaranty Associations, for state-by-state terms.)

    With variable annuities, as with fixed contracts, the associations protect the death benefits, guaranteed minimums, and other contract guarantees. But investment account losses because of market declines generally aren’t covered.

    Q: What are my options if my insurer is at risk of insolvency?

    A: Regulators and consumer groups warn that annuity owners, especially those who bought contracts recently, often stand to lose more when rashly surrendering an annuity than they would risk from the insurance company’s failure. That’s because the guaranty funds protect their money up to legal limits, while surrender charges and other penalties can take a chunk of an annuity’s balance.

    For more information on annuities, visit the WISER website and check out our section on annuities, featuring a variety of articles and reports on annuities.

    Financial News You Can Use

    Wednesday, August 20th, 2008

    Longer lifespans give new importance to annuitiesvia A new report by TIAA-CREF, a financial service firm, says that “annuities can be used to ensure that people have enough money for 30 or more years of retirement.” Americans are currently experiencing longer life expectancies, which may make annuities more desirable for some when creating a retirement savings plans. For more information, on Annuities, check out “Making Your Money Last For A Lifetime: Why You Need to Know About Annuities.”

    Report Urges Raising Social Security Agefrom today’s Wall Street Journal: They call it age inflation, a new term for the longer life expectancy of Americans. A National Bureau of Economic Research paper argues that the age for Social Security eligibility should be raised to compensate for the age inflation the nation has experienced since the creation of Social Security. There are some good reasons why you personally may want to delay your Social Security benefits. To find out more, check out “Shine a Light on Retirement”, which explains why choosing to delay your retirement and social security benefits may help improve your retirement outlook.

    Gender Gap Exists in Adequate Life Insurance Coverage Despite Greater Financial Concerns among Women, According to MetLife Studyvia According to a new study by MetLife, women with life insurance tend to own twice their household income in coverage, while men have coverage that covers three times their household income. The article notes that 64% of working women vs. 52% of working men say they are “very concerned about their families’ financial futures in the event of their own premature death.” For more information on life insurance for women, as well as health insurance in general, you may want to read “The WISER Woman’s Guide to Insurance,” a special report on insurance types, insurance needs and where to locate the coverage you want.

    What are you reading?
    Leave us a comment and let us know what financial news you’re reading today!


    About Us

    WISER is a nonprofit organization that works to help women, educators and policymakers understand the important issues surrounding women's retirement income. WISER creates a variety of consumer publications including fact sheets, booklets and a quarterly newsletter that explain in easy-to-understand language the complex issues surrounding Social Security, divorce, pay equity, pensions, savings and investments, banking, home-ownership, long-term care and disability insurance.

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