June 1 marks the beginning of Annuity Awareness Month. This is a great time to take 15 minutes of your time to better understand annuity products. As I wrote in my book, Today’s Annuity Products – A Tool to Create Protected Lifetime Income, annuities can be a tool you can use in a retirement planning strategy. Current retirees and those planning for retirement are facing a substantial challenge: having retirement income that lasts as long as they do. With a continuing increase in lifespans, the time spent in retirement can be lengthy. This is why a diverse retirement plan is essential to ensuring you have the savings you need to live a long life.
Here are 7 key reasons annuity products should be explored as a tool in your planning:
1 - Lengthening Lifespans
There are 10,000 people per day turning age 65 and 16.5% of the U.S. population is now age 65 or older. By 2030, all Baby Boomers will be at least 65 years of age. At the same time lifespans for Americans of each population cohort are lengthening. The financial challenge to you is how to generate enough income to pay your living expenses for all these years of life.
2 - Desire to Protect Equity Market Gains
Individuals who have done well in the equity markets are looking for ways to lock in the gains they have generated. Moving the money from pure equity products into most types of annuities protects their principal, including the gains.
3 - Tax Deferral
One of the intrinsic values of annuity products is the tax-deferred build-up of accumulated interest and product gains. With income tax rates likely to increase at the federal, state, and local level tax-deferral is a very valuable characteristic of annuity products.
4 - Risk Management
Annuities are an insurance product, and this is becoming better understood. Whether to protect principal, create guaranteed income streams or to take advantage of the new generation of supplemental long-term care and death benefits these products provide needed insurance coverage.
5 - The Scarcity of Sources of Protected Lifetime Income
Individuals cannot find sources of protected lifetime income that annuities can provide. The number of individuals with defined benefit pensions continues to decline. With interest rates on long-duration fixed income investments at such low levels, annuities have become a more attractive tool to use in financial planning.
6 - Leveraging Product Efficiencies
When purchasing an annuity product, the buyer is receiving the professional asset management capabilities of the issuing life insurer along with asset/liability management expertise, actuarial knowledge and mortality credits from the insurers having large books of business. Annuities also come with the protections of state-based operational and solvency regulation. These are capabilities most all buyers do not understand annuities provide.
7 – Recent Product Innovation
Life insurers have brought new product structures to market (e.g., buffered or registered indexed linked annuities), new indexing strategies and new innovative features such as long-term care benefits and the ability to pay for advice from the annuity product without triggering current income taxation.
Resources for Objective Information
To look more into annuity products, here are three organizations that provide valuable consumer information:
Summary
Annuities have strong intrinsic values. Tax deferral, flexible income options, limited liquidity, accumulation provisions and payout guarantees are at the top of the list. As a result of this period of historically low interest rates, individuals are turning over rocks to find yield and sources of protected income. In prior eras, when interest rates were much higher, taking accumulated savings and turning them into reliable, mostly principal protected income streams was much easier to accomplish.
All along, annuity products have been there, available to consumers. Now looks to be the time for them to get their time to be considered. They are a valuable tool you can use to improve your lifetime financial security.
The FinancialVerse: Today’s Annuity Products - A Tool to Create Protected Lifetime Income explores the many benefits of annuities and how they can help protect you from outliving your money. Learn about the different types of annuities, what to keep in mind when purchasing the product and get answers to your key questions.