Fixed Annuities are Growing Favorites Among Investors
by Hersh Stern - Revised Tuesday, November 27, 2018
Millions of future retirees are nearing their selected retirement date filled with apprehension. Will they have enough saved to produce income for the duration of their life? What are the best investment options to protect their capital and to produce needed income streams? While the answers to these questions aren’t straightforward, as every investor’s needs are unique, there are options available that can provide needed income, which equates to security, during retirement years. One of these options is a fixed deferred annuity.
Fixed deferred annuities offer guaranteed interest rates which are applied to the investor’s premium payment amounts. They often offer income options, such as period certain (5 years or 10 years) and even lifetime.
You may be wondering; why would I invest into a fixed product when the stock market should outperform the interest rates offered?
Deferred Annuity table
|Company / Product||Rate||Yrs.|
|Atlantic Coast LifeSafe Haven 10||4.30%||10|
|Oxford LifeMulti-Select 9||3.80%||9|
|Oxford LifeMulti-Select 8||3.95%||8|
|Fidelity & GuarantyFG Guarantee-Platinum 7 Annuity||4.00%||7|
|Oxford LifeMulti-Select 6||3.85%||6|
|Atlantic Coast LifeSafe Haven 5||4.00%||5|
|Oxford LifeMulti-Select 4||3.45%||4|
This is a table illustrating today's top interest rates for deferred annuities. The table lists the name of the insurance company, annual effective yield, and the number of years for which the yields are guaranteed. To learn more about deferred annuities click any line in the chart or call 800-872-6684 for quick answers.
Investors have been conditioned to believe that the stock market is the only way to get ‘big’ investment returns. While the market has historically produced strong investment returns over the long haul, investments are subject to market risk and thus fluctuations. While these fluctuations are relatively insignificant during accumulation years, they can be devastating during retirement as retiree’s often rely upon the income received from their portfolio to cover their lifestyle.
Another important consideration when building a retirement income plan is investor discipline. Most investors do not possess the discipline required to manage their portfolios. In other words, to follow the concept of buy low, sell high. What happens in reality with most investors is they chase the ‘hot stock of the day’, placing a portion of their portfolio in whatever boasted the biggest returns over the prior period, only to sell when the same investment begins to drop. What they are essentially doing is buying the investment when it has already risen, selling at a loss when it begins to self-correct. This type of investor behavior makes it challenging to ever produce the investment returns being sought. And in many cases, these same investors would have yielded stronger returns if they had selected a fixed product, even if the interest rate offered were lower than the return they were seeking in the markets.
Investors are beginning to shift their perspective regarding annuities. What once was perceived to be an investment option for elderly retirees has now become seen as capital security. Investors of all ages and sophistication levels are turning to annuities for their guarantees and tax deferral benefits. Guaranteed growth or future income is attractive as with the right premium amount, a future retiree’s fixed household expenditures could be covered.
In addition to saving into traditional retirement plans, such as a 401k, investors are placing a portion of their annual savings into annuities. The premium grows on a tax deferred basis, propelling their capital in a more rapid forward motion than it would see in a non-qualified, non-tax sheltered investment.
Annuities should be viewed as the workhorse within an investor’s overall portfolio. While they may not produce big, sexy stock market returns, they do grow at a respectable pace, offer guarantees on growth and/or future income and can serve as an important component to an overall investment portfolio.