Saving for the Future

By Karl Edmunds:

The biggest fear among senior citizens is confronting the reality of not having enough savings to last throughout ones life. Amassing a meaningful retirement account isn’t always the answer.

The recent economic turmoil in virtually all global markets has pushed many seniors to consider the use of annuities to manage these core retirement risks.

A common annuity product is the lifetime annuity or sometimes referred to as immediate annuity. The basic idea of these retirement tools is fairly straightforward. You, as the investor, provide a prospective insurance company a lump sum of money for a guaranteed payment for as long as you live.

In today’s world of annuity products, investors have more customizable options than ever before to design a product that suits their particular needs and risk tolerances.

For example, with a basic annuity, the lump sum payment is retained by the insurance company at the time of the insureds death but if you have a spouse, you can design the annuity to continue throughout both party’s lifetimes instead of just one. Payment levels can be changed depending on needs as well.

In addition, there are options to design specific portions of the original investment to be passed to heirs of the insured’s estate or a return of the entire investment. These and other options are driven by time and risk tolerances the insured is willing to consider.

Annuities have always been frowned on due to inflationary erosion of the annuity payments over time, but now payments no longer need to remain fixed, interest rates can be adjusted and payments can be structured over time or linked to an index such as the Consumer Price Index.
The list of options for each investor can give desired flexibility but each design element has a cost that is typically reflected in the amount of monthly income paid to the investor. Seniors that Invest in annuities often are people that are more willing to give up some upside potential of their investments in return for protection of their core principal and assurance of long term payouts.

Historically investors were quick to criticize annuities for their limitation on growth but the recent market turmoil has diminished the validity of this complaint. Those who watched their portfolios decline by more than 35% while annuity holders never lost a penny of their original principal are reconsidering their investment choices.

Stick with the basics…
Every investment choice has a unique set of risks and potential rewards so each must be carefully examined before a final decision is made. One of the key characteristics of annuities is that many of the final buying decisions can’t be changed or can only be changed subject to penalties.

And annuities tend to be illiquid investments. Unlike a mutual fund or individual stock or bond that can be readily sold in an emergency, recovering money invested in annuities is not easy or quick.

Most advisors affirm the old adage to never put all your eggs in one basket. Don’t put all your retirement funds into an annuity just in case your assumptions or needs unexpectedly change requiring a different financial strategy.

If you would like a portion of your retirement investments to fund a guaranteed lifetime of income, then getting a free quote is a good next step. All that is needed to begin the process is basic information including age, where you live, whether the annuity will cover you alone or your wife also and the level of investment you wish to consider.

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About The Author:

For more than 20 years, Karl Edmunds has been a noted author within the business and management consulting arena. As a senior, he now engages his curiosity and observations about life to write about key issues of importance to the growing community of seniors (Boomers), and the value of living life to the fullest every single day. For questions or comments go to http://Plan-Retirement.org or http://For-Seniors.org