You already know that annuties are issued by insurance companies. You also know that insurance companies tend to be rock-solid financial institutions. Notice the word TEND in that sentance. Yes, it’s possible that insurance companies can fold. And there isn’t anything like FDIC protection.
But you also know that banks have their own share of problems. More so recently than before, it seems. And you also know that FDIC insurance is only good up to $100K. That’s fine for your smaller personal checking and savings account… but for your retirement nest egg?
The Dallas Morning News recently ran a story covering these risks. Their advice is that you should do your homework and make sure that the insurance company you are considering is financially sound. There are plenty of ways to evaluate the health of these companies, but they suggest your homework be from more than one source:
…the rating agencies disagree often enough that you should consider a company’s rating from two or more agencies before judging whether to buy a product from that insurer…
Solid advice. When we run at Vital Signs report for our clients, it pulls info from several organizations to make sure the best information is presented. Armed with that, your confidence of your decision goes up significantly.
Some of you reading this left the “traditional’ job market years ago. Entrepreneurs, small business and startups all have a certain appeal to the flexibility, feedom and challenges. Of course, they come with some risks and a few disadvantages of staying on board with a Big Company for life.
One of the biggest: no pension plan. That may sound like a risk worth taking when you are in your 20’s. But what about those nearing retirement age? CNNMoney has a suggestion:
Consider annuity policies, which allow you to invest a chunk of your savings in return for regular payouts. Annuities got a famously bad rap in the 1990s because of their unfamiliar - and surprisingly steep - fees. Since then, the variety of products has grown and some of the fees are down, especially if you shop around.
That’s good adivce. Many things have changed in the last decade. Annuities — the right ones, at least — are often times the best option for the aging risk taker. The article linked above provides some great insight and examples that help explain your options.
ABC News columnist David McPherson recently suggested people consider buying their own pension. From the article:
In a difficult investing environment, one of the best protections you can have against market uncertainty is a guaranteed stream of income from something like a traditional pension plan.
His suggestion? Get an immediate annuity. He goes on to compare the “traditional” pension plan with an immediate annuity, pointing out the similarities and differences. The article also contains some great example math, with very good and clear explanations. Check it out!
The SEC wants to hear from you on the proposed rule on federal regulation of index annuities. As reported in Investment News:
Were the rule to be approved, the products would come under the jurisdiction of the SEC and the Financial Industry Regulatory Authority Inc. of New York and Washington.
Personally, I see this is a good thing. Things are a little “wild wild west” for our tastes, and putting them under regulatory control will elminate much of the non-consumer friendly practices taking place. So support the proposed change with your comments!
Things are looking so good for Security Benefit Mutual Holding Company. Yesterday, MarketWatch reported that A.M. Best had downgraded the financial strength of two of their insurance companies.
The action was attributed to several factors, including loss of fixed income, high exposure to debt, and the declining equity market’s potential variable annuity impact. And while SBC has a plan to raise additional monies:
Given the historic levels of disruption in the financial markets, A.M. Best is concerned that SBC Group may encounter challenges in its efforts to raise new capital.
- Security Benefit Life Insurance Company (SBL) (Topeka, KS)
- First Security Benefit Life Insurance and Annuity Company of New York (FSBL) (White Plains, NY)
