Current events, commentary, and links to other resources on retirement income and annuities in the news.

Thinking Smarter About Risk- Moshe Milevsky on Annuities

This article written by Dr. Moshe A. Milevsky in Monday’s Wall Street Journal is one all members and visitors of AnnuityStraightTalk should read.  It deals with the management of risk according to a set of factors rarely considered in financial planning circles.

The article discusses the difference between personal and financial capital.  Your personal capital reflects your future earning power while financial capital is comprised of the assets you have accumulated over your career.

Younger workers hold most assets in the form of personal capital while pre-retirees tend to have more financial capital.  Both forms have associated risks and proper financial planning can not be done without considering the two in conjunction.

If your personal income is negatively affected by downturns in the market then financial assets should be conservatively invested.  The closer a person comes to retirement, the more closely those assets should be guarded because personal capital decreases with the number of working years remaining.

If your financial capital needs protection, how do you plan to do it?  When considering safe investment vehicles, do annuities fit into your retirement picture?  Browse my site for information on how annuities can help protect your financial capital.

I highly recommend reading Dr. Milevsky’s article.

Find the article here.

Retirement Income Options

If your retirement income strategy is optimized, then you have a strategy for asset distribution during retirement.  If not, then major financial institutions are busy finding ways to bring you in, and offering products and services to clients who are moving away from accumulation strategies.

This week, Forbes.com features an article that talks about how mutual fund companies are developing product offerings designed to meet long-term retirement income goals.  In short, they are trying to compete with annuities and the insurance industry.

As more and more baby boomers approach retirement, focus has been shifted from asset growth to distribution.  The safest and most profitable solutions have been around for a long time.  While distribution-oriented mutual funds will give retirees more options, they have yet to match the guarantees found in annuity contracts.

Options are important in any retirement plan.  Just remember that no plan is safe without contractual guarantees from a solid financial institution.  If volatility is something you’d like to leave behind then any mutual fund option may not give you the desired level of safety that annuities can.

In the same sense, all good plans are balanced.  Annuities can provide a good baseline to meet expenses and securities account will enable continued growth.

Explore AnnuityStraightTalk for information on the stable portion of your portfolio.  For a free membership simply sign up today for a complete guide to a safe, flexible and profitable retirement.

To learn more about the retirement income funds featured on Forbes.com click here.

Are Annuities Bad?

Annuities are not good or bad but instead suitable or unsuitable for an individual or situation.  I apologize if you’ve read that in too many places on this site.  It is a point that can’t be stressed too much because of the polarizing opinions you’ll find while looking for annuity info on the internet. Last week the All About Finance blog posted a scathing critique of indexed and variable annuities.  I happen to be a proponent of annuities and I’m not scared of people who disagree with me.  When I recommend fix my credit as part of a financial plan, there is no doubt the placement is appropriate.

Recommendations should always be placed in the context of each individual so often time proper advice will lead a person away from annuities.  That’s more than I can say for the author of the all about finance blog who seems to think all annuity salespeople should be prosecuted for self dealing and fraudulent advice.

Little evidence of the author’s knowledge of annuities is present in the blog but they seem to offer blanket advice to everyone regardless of personal factors. Now I do agree that abusive sales practices exist and a few examples mentioned appear completely inappropriate but that is hardly reason to chastise all advisors who favor the use of annuities. Apparently the author favors the use of actively managed securities in any situation over annuities so should I assume that he/she is no better than Bernie Madoff or R. Allen Stanford? That would be silly and so is the main point of that blog. 

The harsh reality is that personal education is a critical component of making good decisions whether you choose an annuity or anything else. Annuity Straight Talk was created to enable this approach to using annuities for retirement income planning, and to give people the ools to make their own educated decisions.  If you are not already a member,  join now to access the free reports so you can avoid a horrible mistake like mentioned on All About Finance.

Annuities and the Global Economy

Christopher Wood of the Wall Street Journal gives a great assessment of the current global economy in an editorial today.  Now I know it’s an opinion piece but show me one economic analysis that isn’t.

The article talks about the chances for a double dip recession and how different markets and economies around the world could be affected by both inflation and deflation.

How do annuities fit in?  That’s easy.  Annuities are safe and have continued to grow and protect wealth througout the current recession and every one before now.

If you are concerned about protecting a portion of the assets you have from extended difficulties in financial markets, use this site to learn about how annuities can fit into your plan.

Beware of sales tactics used to push unsuitable products and feel free to call me for a no-pressure discussion of your situation.

Wood’s article can be found here.

Using Annuities to Combat Longevity Risk

AMERICAN ACADEMY OF ACTUARIES LOGOAn actuarial statement regarding annuities and longevity risk has just come across the the PR Newswire.

Longevity risk is of course the risk a person has of outliving retirement assets.  This statement talks about how you can do more with less when using income annuities in retirement.  Apparantly it takes 50% more assets to equal the income generation of annuities.

And this is all according to the American Academy of Actuaries.  I’ve mentioned this several times before but the argument is strengthened with a complimentary study from the group of professional mathematicians.

Further, this leaves little doubt that annuities should play a critical role in prudent retirement income planning.  Whether you have just enough to retire or barely enough, guaranteed income should serve as a foundation.

Now, everyone is different so solid analysis and advice is key to designing a retirement income portfolio properly.  If you are not already a member of Annuity Straight Talk, join today to learn what annuities can accomplish for you.

The report can be found here.

Suitability- Is An Annuity Right For You?

A welcome change to annuity sales practices may be on the horizon.  Until now, strict suitability standards were only applied to Variable Annuities.

Last month the National Association of Insurance Commissioners approved a new set of standards that will apply to fixed products as well.

Hopefully this will bring some decency to sales practices nationwide, although implementation of the new regulation will depend on which states adopt the policy.

If you’re familiar with my site, I favor stringent standards for all annuities to ensure proper placement and maximum effectiveness.  If you haven’t been here before, sign up today and learn to screen products and sales pitches yourself.

Read the National Underwriter release here.

Income Annuities and Mainstream Advisors

InvestmentNews.com posted this article that illustrates an important point regarding investment advisors and their take on annuities.

I’ve heard every opinion on annuities that can be found and mainstream money managers have always confused me.  If they had to be honest, they’d probably admit that they don’t like annuities because they lose management fees.  Instead, they recommend a client continues to bear risk throughout retirement.

Guaranteed retirement income is critical for at least a portion of your assets.  The article also clearly states that portfolio longevity is enhanced considerable with the use of guaranteed income annuities.

Read the article here and when it comes time to craft a solid plan, choose an advisor that puts your interests first.

There is no excuse in my opinion for bad advice, and I can see no reason why retirees should bear any risk at all when guaranteed retirement income options are available.

Guaranteed Lifetime Income

And yet another backdated article with current relevance… This came out in Forbes last May and the lesson will be important as long as retirees explore all the ways to maximize cash flow from retirement assets.

As also mentioned on this site, the Forbes articles talks about how immediate annuities create the highest level of guaranteed lifetime income of any retirement product on the market.

Of course many annuity products will produce income guarantees but choosing the right one takes careful research and consideration of all personal factors involved.

Annuity Straight Talk focuses on the various products available, the pros and cons of each and how to ultimately determine suitability for the intended consumer.

Do yourself a service that will last a lifetime and start your free memberships today.

Read the Forbes.com article here.

Retirement Income

This article on BusinessWeek.com came out last summer but it’s underlying lesson will be relevant for years to come.

Fidelity completed a study that shows 85% of people from ages 55-70 value guaranteed retirement income above high investment returns.

The article also suggests that financial institutions are attempting to craft complex guaranteed funds to add more income security to retirement accounts.

This is all more complicated than it needs to be.  Annuities have been around for a long time.  They can do the job and have passed test after test over several generations.

AnnuityStraightTalk is positioned to give people simple solutions with profitable and lasting effects.  Join the site now for free access to all of our valuable reports.

Find the Business Week article here.

Find quality Retirement Income advice at Annuity Straight Talk,

A Close Look at Tax Sheltered Annuities

** This excellent guest post by David Brown illuminates Tax Sheltered Annuities.  Enjoy!

A Tax Sheltered Annuity (TSA) is a kind of annuity which permits an employee to contribute from his income to a retirement plan. The contributions are not taxed until the person decides to withdraw his money from the plan. Moreover, the employer can also contribute to this plan which makes it all the more attractive. Public sector employees and self employed people are the ones who mostly benefit from TSA.

403(b) Tax Sheltered Annuity- The most popular TSA

IRS code 403(b) says that employees of educational institutions, non-profit institutions and self employed ministers can make contributions from their employment earnings to supplemental retirement accounts called tax sheltered annuities. These accounts are tax-advantaged. The Money is taxed only after withdrawal. The employer can contribute to this account but it is not obligatory for him to do so. To enroll, you just need to fill and sign a salary reduction agreement which has the details of the amount of money that will be deducted from your salary for a specific period of time.  Initially people were only allowed to invest in annuities but now they can invest in mutual funds as well.

In addition to 403(b) there are other kinds of TSA like 457(b) and 403(a). While 457(b) is about employees of city and state governments, 403(a) addresses self employed people. It is worth mentioning that all the TSA are fundamentally similar.

What are the advantages of TSA?

1. TSA can very well supplement social security benefits. The salary reduction arrangement also makes life easy for people.

2. Tax deferred savings growth makes TSA a very attractive proposition. The money that would have been lost in yearly taxation is now invested and is supposed to generate income.

3. A great thing about TSA is that you can save while reducing taxable income. Since your total taxable income is reduced you may also fall into a lower tax bracket. This means that you will have to pay less money to Uncle Sam in terms of tax.

4. Here the growth of funds is tax-deferred which will ultimately make you quite a bit      richer in the long run.

5. Generally speaking, TSA plans offer flexible terms and conditions.

6. You will have full rights over the funds even if you are no longer associated with your contributing employer.

7. Although the maximum annual contribution that can be made to TSA is $11000 but people who are above 50 years of age can make additional contributions upto $5500.

8. Participating in TSA does not reduce the benefits of your other retirement options like pensions or social security.

It should be noted that a 10% penalty will be charged by the IRS in case of premature withdrawal of the funds.

Tax Sheltered Annuities are supposed to act as supplemental retirement programs. Remember that under normal circumstances they are not an alternative to traditional retirement options. However, they can be beneficial to people, especially to people who do not enjoy the post-retirement privileges offered by private sector companies to their employees. TSA cannot provide you shelter from any financial crisis like debt but they can complement your retirement plans and make your future more secure.

**

Interesting information on Annuity Taxation

Is an Annuity Right For You?

Annuity agents will now be held to a new set of standards by the National Association of Insurance Commissioners.

According to InvestmentNews.com fixed annuity contracts will now be subject to the same regulatory compliance as variable annuities.

This means agents will be required to prove suitability for fixed contracts according to an individual’s overall portfolio.  In addition, all agents will be required to complete a specific annuity suitability course in order to continue selling the products.

That’s good news for consumers.  Hopefully that will reduce the number of garbage contracts sold to naive investors.

Read the full article here.

Annuity Scams

The Minnesota Department of Commerce has fined an insurance company for selling annuities with exorbitant surrender charges.

High surrender charges are never in the best interests of a client and the annuity product itself must be proven suitable for a specific individual’s needs.

At Annuity Straight Talk, we have put in place a system of checks and balances so a potential investor can easily differentiate between good and bad contracts.

Read the release here.

Annuities and Retirement Income–Education Is Critical!

InvestmentNews.com recently released an article that highlights the findings of a study done to see how much retirees know about retirement income products.

Annuities were cited as the third most popular option even though many consumers had little idea of how these products work.

Education is essential to understanding how best to remove risk and maximize retirement income options.

Read the article here.

Now, to get your self in a position stronger than 95% of other retirees, educate your self on annuities.  Sign up as a free member to Annuity StraightTalk and let us assist you.  We’ll give you the tools to make an informed decision and help you find the best annuity for your unique situation.

Pros and Cons of Variable Annuities

Understand The Pros and Cons of Variable Annuities

No other product in the Annuity business creates as much controversy as Variable Annuities.  Frankly, I’m getting kind of tired of all the loud opinions about the Pros and Cons of Variable Annuities- it’s either a table thumping BUY or a screaming SELL.  It’s  just like watching Jim Cramer on Mad Money.

There’s no middle ground, and if you follow the BUY side (selling agents) every sales office should have a line of people waiting to buy.  Listen to the SELL crowd (journalists and many financial planners) every insurance company would be shut down because of fraud.

I know that sounds extreme but it really does show you the difference in the type of advice you are bound to get.  So if you are familiar with my work, you’ll know that I try to be objective and provide solid evidence as to the pros and cons of annuities of All shapes and sizes.

Frankly, I’ve avoided writing this for a long time, because these are complicated beasts and it’s hard to make any kind of apples to apples comparisons.  But I’ll tackle the variable annuity debate in this article.  Before I go further, let me say that even after my  research and experience in the industry, I am not overwhelmingly for or against variable annuities.  Like a lot of things in life, there are times when they work great and others when they are completely inappropriate.

Also, while we don’t sell variable annuities, this website would not be complete without this  information on how variable annuities work and their pros and cons.  While variable annuities do make up the majority of annual annuity sales, we use safer, more guaranteed methods of creating stable retirement income.  It you have a question about an existing variable annuity or want to consider other alternatives such as Secondary Market Annuities or Index Annuities, please Contact Us.

Pros and Cons of Variable Annuities: Pros

Guaranteed Benefits:

  • Death Benefit This allows the heirs of the contract to inherit the full principal balance in the event that the contract owner passes away while the contract is in force and the account has lost value
  • Income– This allows the contract owner to lock in a predetermined level of future income regardless of account performance.
  • Principal This allows the contract owner to recover the principal investment or the highest contract value achieved regardless of the account value at time of surrender.
  • Tax Deferral:  Taxes are deferred on the growth of assets inside an annuity giving the contract owner the added benefit of greater compounding.  Many critics suggest that excessive fees mitigate tax deferral benefits.  If tax deferral is the sole focus of purchasing an annuity, expensive optional riders can be waived so that total fees will run no higher than the average mutual fund.
  • Unlimited Contributions: Retirement plans have contribution limits.  If you ever come in to a larger sum of money, much of it will not be eligible for allocation in a 401K, IRA, etc.  Annuities have no contribution limits.

Pros and Cons of Variable Annuities: Cons

  • High Fees:  Many annuities have optional riders that push the overall fees to 3% or more.  Plenty of products allow an investor to elect out of the options but some don’t.  If you are purchasing an annuity with high fees, there had better be compelling reasons to do so.
  • Limited Investment Choices: Asset allocation options are limited within an annuity.  Some contracts have predetermined portfolio balances and others will list a limited number of available mutual funds.
  • Surrender Charges: As with all annuities, variable products have surrender charges so your money is tied up for a specified period of time except for the usual 10% annual free withdrawal. Be positive that the surrender schedule works with your investment time horizon.
  • Immobility: The combination of investment limitations and surrender charges means that your money is much less mobile than it would be in an equivalent securities account.

Pros and Cons of Variable Annuities: Summary

As you can see, the analysis is pretty simple.  If you are looking at the prospect of a variable annuity just weigh the pros vs. cons to figure out if it works for you. For most of my customers using the decisions tools we outline in the Annuity Report, available by free download to our members, most of the cons seem to be deal breakers if even if a few components are tolerable.  Overall, for me, the cons outweigh the pros most of the time.

Once you understand the pros and cons, Variable annuities have specific uses for a small class of investors that either works for you or it doesn’t.  Make sure to seek solid advice from an open-minded advisor.

Retirement Planning Psychology

Here is a great article recently released on SmartMoney.com that talks about the psychological hurdles people face while trying to properly plan for retirement.

Of course, annuities are mentioned because of the stability and guarantees offered by the various types of contracts available.

To read this article click here.

Do You Need Lifetime Income

Lifetime pensions from companies are going the way of the dinosaur. Consequently, the thing most people nearing retirement are worried about is outliving their nest egg. People long for the safety a pension provides- monthly income that lasts a lifetime.

Well, there is another way to achieve this and that is through lifetime annuities from insurance companies. Insurance companies provide insurance against risks, be it accidents, flooding, etc. Longevity risk is the risk of outliving your retirement money, and insurers are willing to make policies on this risk factor as well.

Annuities are rising in popularity as the number of Americans who are nearing or in retirement increase.  Lifetime Annuities are a great fit for many, and guarantee a lifetime income regardless of how long you live.

There are many types of annuities that in various ways can offer lifetime income.  One way is to purchase the guarantee of lifetime income with one lump sum premium up front. The amount of your monthly payment will be determined by your age, location of residence, gender and the amount of your lump sum premium.

Lifetime annuities offer the security of income without the risk of eroding your principal base.  There are literally thousands of ways to guarantee income with lifetime annuities, and the selection process can get quite involved.  Before making any purchase decision, you will want to address questions of return on your investment, return of your principal, credit quality of the issuing company, flexibility of premium payments, inflation, and other issues.

We detail these and other decision factors that you should address when seeking lifetime income in The Annuity Report and invite you to Contact Us for more information on this process.

What is a Guaranteed Annuity?

When you are looking for a guaranteed lifetime income in retirement, safety and consistency should be your main concern. In these days of economic distress, employer pensions are of questionable stability and most other investments carry too much risk.  It’s no wonder, then, that quality guaranteed annuities from highly rated insurance companies are rising in popularity.

One of the most important things you can ask for in retirement is a consistent and secure monthly income that you can rely on. A guaranteed annuity can provide you with that consistent monthly income year after year in your retirement. If you have a retirement account, you will need to decide what you will do with the funds as retirement nears.

Typically, the company handling the funds will contact you trying to sell you an annuity. Basically, you are trading in the funds in your retirement account for steady income in retirement. You are not required to convert your retirement to an annuity with the same company who holds the retirement fund. This is a common misconception and can cost thousands of dollars in retirement. You should never take the first deal being offered you, and there are plenty of other products on the market to choose from.

So while a guaranteed annuity may be just the right thing at this point in your retirement planning, it’s critically important to pick the Right guaranteed annuity…  AnnuitystraightTalk can help with that decision. Your options will include fixed annuities, variable annuities, and immediate annuities.    All have benefits and drawbacks that you should be aware of, but all, in their own way, offer some level of guarantee.

The term ‘Guaranteed Annuity’ therefore is often misunderstood-  it’s not a type of annuity, but rather, is a characteristic of most annuities. The length of guarantee, the rate of return guarantee, the income guarantee— all these are variables that you pick between to find the best combination of safety, flexibility, and profitability for your situation. It might take a little work, and Annuity StraightTalk can help, but finding  Guaranteed Lifetime Income is worth the effort!

Please, become a member of AnnuityStraightTalk and get a copy of The Annuity Report.

Why You Should Buy Annuities

So Why Do People Buy Annuities?

Most people have heard varying opinions concerning the reasons for and against the use of annuities for retirement planning. Sometimes it helps to have some facts that show why other people buy annuities and why they have chosen this route in the past.
 

According to LIMRA (Life Insurance Marketing Research Association) there four major reasons why people buy annuities. In order of importance and popularity those are as follows:

 
Safety– Annuities offer an unmatched level of security that attracts people with various objectives. Insurance companies carry very low or non-existent leverage ratios in comparison to their banking counterparts and are required by law to hold substantial reserves that further insulate the conservative investment portfolios from market shock. Throughout history there a very few cases of consumer losses associated with insurance company failure. To further mitigate any potential damage, each state has a guaranty association that provides an ultimate backstop to cover claims when an insurer goes insolvent. Many additional safeguards exist that contribute to overall safety. For a detailed discussion of these safety features, contact our office at 800.438.5121 or make an appointment via the website.
 
Tax Deferral– Most people recognize the importance of planning for the eroding forces of annual taxation on investment. It is also well-known that annuities offer tax deferred growth on investment that makes them preferable to many alternate safe money financial vehicles. Our website has several retirement and annuity calculators that clearly illustrate the differences between taxable and tax deferred growth. Visit AnnuityStraightTalk.com to run some comparisons and see if tax deferred annuities can make a meaningful impact on your retirement savings.
 
Guaranteed Income– Several types of annuities offer a quality source of guaranteed lifetime income. Whether your need for income is immediate or a few years away, it’s worth looking into the incredible benefits annuity contracts can bring. 
Securing a source of guaranteed income is the first step toward optimizing a retirement portfolio. It cannot be done otherwise… period! Look for a more detailed discussion of this in subsequent emails and feel free to call our office (800.438.5121) to discuss how available products and strategies can benefit your retirement income plan.
 
Rate of Return– That seems odd, doesn’t it? But that’s right, rate of return is the fourth leading reason people buy annuities. While it is true that the rates offered with annuity contracts is competitive in any environment, it is actually the safety, tax deferral and guaranteed income benefits that are higher ranked according to consumers. 
 
When it all comes down to it, the previous benefits hold much more value to people who harbor uncertainty after years of mixed results in the market. That may or may not represent your focus so if you’d like to talk about not only the return on your money but also the return of your money, call our office now. 800.438.5121
 
No matter what benefit appeals to you most, this shows reasons why people have seen the advantage of making insured products a vital component of retirement portfolios. If one or more of these sounds like something you can use, perhaps it’s time for a serious discussion.
 
Choosing the right product can be a challenge so we created The Annuity Report to make it easier to understand available contracts and find one that meets your needs. Add to that the fact that your individual situation is unique and you can easily see that an objective suitability is necessary to show how your personal finances will benefit from guaranteed products.
 
When you are ready to buy annuities, please call or set an appointment.

Are Annuities Safe?

This is a common question that puzzles many people, and unfortunately mis-information usually results in sweeping mis- judgments. Investors, of course want to know that their funds are safe and that their income is secure.  Too often, sales people don’t take enough time to understand the underlying strength of the insurance industry and the individual companies that back up annuities.  In many cases, annuities and insurance products may be much safer than bank deposits with FDIC guarantee!.

The FDIC Guarantee gives a lot of security to savers, however in recent press, the FDIC has all but said it is bankrupt.  FDIC insurance rates- the fees the Banks pay to the FDIC for the insurance on the deposits- have increased 6 to 10 times in recent months,   it is quite possible that as an insurance company, the FDIC is so insolvent and is squeezing its ‘customers’ the banks so hard that it may contribute to smaller banks going out of business.  Combine the banks rising cost with their souring loan portfolio, and it’s a tough climate.

So while the FDIC emblem on the bank is a good selling point, the strength behind it is the Government printing press, and that engine may be of questionable worth in the years to come.

Insurance companies are different. They are not part of the FDIC system, but instead have actual, real cash dollars in reserves.  In addition, each state regulates insurance companies and many states have guarantee funds that back the individual investments the insurance companies manage on behalf of their customers.

Too often, misinformation or bad press clouds the fact that insurance companies are very safe, hold huge cash reserves, and offer equal or stronger guarantees than FDIC insured banks.

We can help you answer the question, Are annuities safe? and learn more on how to select the right annuity if it’s appropriate for your retirement income needs, in The Annuity Report.

 

Annuity Rates

Determining Annuity Rates is a daunting task….. For advisers who do not listen intently to their clients.

However for advisers who do their job properly, and for their lucky clients, the process is to clearly define the goals, objectives, and timeline, and only then to find the right tool for the job.

Focusing on rates is but a small portion of the equation for optimizing a retirement income portfolio. More important is to analyze the goals, the assets, the needs, and the risks, facing an individual’s retirement plans. Only then is it appropriate to discuses annuity rates.

Become an educated annuity buyer, and know when it’s appropriate to focus on the annuity rate.

Where Are Annuity Rates Emphasized?

Sure, you can find a high appreciation rate…. but is it coupled with a murderous surrender schedule??

Is a big, bold payout rate masking the fine print, where you realize the payout rate is based on an annuity’s income value, and the actual account value has no guarantee whatsoever?

Beware that which sounds too good to be true… it usually is. Focus on what you need… what provides you the best combination of Safety, Security, and Profitability, in that order.

Focusing on annuity rates only is to focus on one leg of a three legged stool.

Annuity Scams

Annuities are not bad.  But abusive or naïve agents can lead to real trouble.

If you are considering the use of an annuity for retirement, there is nothing to be scared of.  Save your anxiety for the real problems retirees face like the longevity of social security and Medicare benefits. Choosing an annuity as a retirement investment vehicle is a science.

First of all, suitability for the intended purchaser needs to be determined based on a wide variety of factors unique to each individual.

Then comes product selection.  After surviving the suitability process, screening products can seem like a daunting challenge.  And, in a lot of ways, it is. The selection process is where greedy salespeople make their move.  The purchase of any annuity will pay someone a commission, so you need to get over the fact that an agent is looking to make money.  That’s just the way it is.  Concentrate on your needs and you’ll be fine.

Here is a quick list of the things to look for so you can avoid the purchase of an inferior product.

Surrender Charges- Most deferred annuities have no upfront fees so the insurance company protects themselves by charging you for canceling your contract early.  Longer surrender schedules indicate a higher cost to the company.  Most of the time this is linked to upfront bonuses and higher than average agent commissions.  Your best interests are not being represented.  Simply ignore products with surrender schedules that last more than seven years.

Some decent products have longer schedules but there needs to be a compelling reason to extend the contract.  Do your homework! On a side note, make sure you clearly understand any additional restrictions placed on the surrender of a contract.  Some contracts state that you can only surrender early if you take installments over a certain period.  Also, those same contracts will impose those restrictions on your heirs should you pass away before the schedule expires.  Avoid any such contract at all costs.  There is no academic benefit to annuities like this.  It’s your money and you should maintain as much control as possible.

Interest Rates- An individual must learn to analyze the interest rate components of a contract.  Important rates to know about are premium bonuses, guaranteed minimums and the yield to surrender.

Premium Bonuses – Many companies lure investors with lucrative one-time bonuses.  These almost never work out to your benefit.  This raises the cost of placement for the company and leads usually leads to a longer surrender schedule.  Don’t let the sirens lure you in.  Turn around and walk the other way.

Guaranteed Minimums- This rate tells you how much interest you will make in the worst-case scenario.  Don’t settle for less than 3%.  If a company pays less than that, it will indicate one of two things.  Either they are trying to cut costs or they don’t have a clear enough picture of their future financial performance.  You want solid companies that have survived the 2008 financial storm and expect to do business as usual now and in the future.  Your money deserves no less than the best.

Yield to Surrender- This is the cumulative rate of return you can expect when the contract expires.  This is where the useless bonus rate is exposed and a solid minimum guarantee shines through.  Bonus rates likely lose ground over time and a good minimum guarantee will provide you with reasonable expectations.

Credit Ratings- Annuities are supposed to be a safe investment.  It should go without saying that you want to place your money with the most stable company you can find.  Turmoil in any atmosphere will weed out the weakest players and further strengthen the most stable.  Find those companies.  They deserve to be trusted.

To keep things simple, we can stop right there.  Those areas are exactly where you will run into trouble.  Captive agents have little choice but to sell specific products and commission motivated agents will often overlook many potential pitfalls.  Understand the ground rules and learn the basics and you have nothing to worry about.  Remember, it’s just an annuity… there’s nothing to be scared of.