Annuities are among the safest vehicles in the world. Being familiar with the common threats to retirement security will help you make educated decisions about protecting your retirement assets.

Common Threats to Retirement Assets:

  1. Longevity Risk: This is the risk of outliving your money. As we get older, our ability to accurately judge our own life expectancy is difficult due to the wide range of possible outcomes. There is no greater risk to retirement assets than longevity risk.
  2. Longer Life Expectancies: In a short period of time, life expectancies have increased dramatically.
  3. Insufficient Lifetime Income: The shift from corporate pension security to private sector retirement funding has put a burden on retirees. Baby boomers were understandably unprepared as this shift happened during their working years and medical technology led to longer life expectancies.
  4. Inflation: Like un-managed high blood pressure, inflation causes silent, persistent damage.
  5. Improper Asset Allocation – Assets Over Income: As we get closer to retirement, we must shift our thinking from asset growth to income creation. Leaving our assets at risk can be costly because we cannot replenish losses with more income. The proper weighting of assets and income is different for each of us and requires careful customization. A severe stock market correction worries many retirees more than anything else.
  6. Rising Medical Costs: This threat can do sudden damage.  Some annuities double the income payments for a long term care event and should be strongly considered for those without long term care insurance.

More Common Retirement Threats:

  • Loss of Spouse & Declining Cognitive Issues – All of us can expect to deal with cognitive decline during retirement. The loss of a spouse can often compound these challenges, especially when that spouse was more involved with investments. Managing investment portfolios is too complex and too difficult for many aging retirees. Leading economists throughout the world concur about the advantages of annuity income for the purpose of minimizing investment complexity in retirement.
  • Investment Scams: Be careful when an investment pitch feels too good to be true. Feel free to ask for a second opinion.
  • Fees: The more transparency and disclosure, the better. Fees and other charges add up. Over time, based on a 1% annual fee, a $1,000,000 portfolio will lose $100,000 over 10 years and $200,000 over 20 years; to management fees.  Annuity owners do not pay commissions when buying annuity contracts. The commissions are paid from insurance companies, not from the annuity. More
  • Bad Advice: Even though retirees want to avoid principal losses, too many of them have all their retirement assets invested in equities and other high risk investments. It makes sense to get second opinions from professionals with different disciplines.
  • Market Losses: Principal losses are devastating in retirement. With indexed annuities, principal and all future gains are guaranteed. When markets are down, annuities will never credit less than zero percent.

How safe are annuities? Insurance companies are regulated by state departments of insurance and they are required to submit financial information, annually, not only to the state department of insurance, but to each rating agency. Every state has a guarantee fund that covers annuity policyholders between $250,000 and $300,000 against the risk of carrier insolvency, which is extremely rare. State guarantee funds work similarly to FDIC insurance. It is always beneficial to review their terms. Some indexed annuities are securities and those annuities are quite different than the huge majority of indexed annuities that are not securities. We do not offer annuities that are securities as we sell security, not securities.

Are you vulnerable to any of the retirement threats mentioned in this article? Our goal is to help our clients become aware of how these threats might affect them and to minimize them. Using the right vehicles and strategies, there is comfort and peace of mind that is often lacking in retirement.

Please call 561-771-4647 or email Ted Bernstein for a complimentary consultation. Are annuities safe?

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