The Federal Reserve’s decision to cut its benchmark federal funds rate from 1% to a range of 0% raises significant questions for those reassessing their retirement nest egg—a common occurrence following a dramatic selloff in equities according to research conducted by Indiana University’s Alessandro Previtero —and the value of annuities in providing guaranteed lifetime income.
As the stock market experienced unprecedented growth over the past eleven years, many people were naturally less interested in the lifetime income options from pensions or annuities. Who wouldn’t rather have all the assets today so they can invest them with the idea of earning high returns?
Annuities are like power tools. In the right hands, they can help you considerably, but if you don’t know what you’re doing, you could cut your fingers off.
You should be familiar with all of the tools in your retirement income toolbox. Retirement plans can be built to manage varying risks by strategically combining the following retirement income tools in different ways.
With all of my discussions of annuities lately, it is worthwhile to also consider the sensitivity of annuity pricing to interest rates, gender and age-related mortality factors. Relationship Between Payout Rates and Interest Rates Figure 1 estimates the relationship between annuity payout rates and interest rates for 65-year old males, females, and opposite-gender couples with […]
I have published a few pieces in the past couple weeks on how income annuities are priced and used. Understanding how to use annuities can be a great benefit when planning for retirement. Let’s consider another possibility.
In today’s scenario, we’ll see what happens to the price of an annuity if:
1. We guarantee income will be provided for at least 10 years, regardless of whether the annuitant lives.
2. We provide a cash refund if the annuitant dies before at least receiving their full principal payment.
3. We include a cost-of-living adjustment for annuity payments.
How are different types of annuities priced? It’s not as hard as you might think, as the basic recipe requires just three ingredients:
Income annuities come in a variety of shapes and sizes. It can be overwhelming to know which one makes the most sense for your situation. In this column, I explore how income annuities work and what options are available.
We must avoid from the notion that investments or insurance alone will best serve retirees. Investments vs Insurance – each has its advantages