Renwanz Insurance & Financial Solutions, Carlsbad, CA
Annuity companies are required to invest the majority of their portfolios in bonds. They do have flexibility to invest in bonds that are rated high or low. If a high-grade bond is AAA rated, it will provide a lower return to the annuity company. If the annuity company is willing to invest in lower rated bonds, the return will be high because of the increased risk.
Annuity companies also have the flexibility to invest in bonds with different maturity schedules. This can have an impact on your annuity renewal rate based on when you purchased your annuity and the timing as the bond market moves up and down over time.
Annuity rates have recently dropped and while nobody has a crystal ball to know exactly where rates are going, here's an approach you can think about and see if it addresses your concern.
You can use what is called a "ladder" approach. Take the total amount of what you intend to put into an annuity and split it into 3 or 4 pieces. Purchase one annuity now with 1/3 or 1/4 of your total amount. Wait one or two years and do the same with the next 1/3 or 1/4. Using this strategy can be effective during a time when annuity rates will be climbing. Of course, if annuity rates drop, it can work the other way. Remember, you always have the option not to purchase a 2nd or 3rd annuity if the interest rates are not to your liking.
Using the laddered approach does leave the question as to what you do with the remaining funds during your "wait and see" time. That lost time can be a drawback if you're just going to let your money sit in a bank CD which typically earns only a fraction of what an annuity can provide.
Speak with a qualified retirement income professional that can look at your particular situation and help determine the best course of action for you.
Business Development Officer, T.D. McNeil Insurance Services, Fresno, California
The value of annuities is tied to the federal management of the money supply. When the objective of the government is low or no interest, the life insurance companies that write annuities have very little choice because there aren’t suitable investments available. Incidentally, it is precisely this policy that is creating a dilemma in some pension plans.
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Annuity companies also have the flexibility to invest in bonds with different maturity schedules. This can have an impact on your annuity renewal rate based on when you purchased your annuity and the timing as the bond market moves up and down over time.
Annuity rates have recently dropped and while nobody has a crystal ball to know exactly where rates are going, here's an approach you can think about and see if it addresses your concern.
You can use what is called a "ladder" approach. Take the total amount of what you intend to put into an annuity and split it into 3 or 4 pieces. Purchase one annuity now with 1/3 or 1/4 of your total amount. Wait one or two years and do the same with the next 1/3 or 1/4. Using this strategy can be effective during a time when annuity rates will be climbing. Of course, if annuity rates drop, it can work the other way. Remember, you always have the option not to purchase a 2nd or 3rd annuity if the interest rates are not to your liking.
Using the laddered approach does leave the question as to what you do with the remaining funds during your "wait and see" time. That lost time can be a drawback if you're just going to let your money sit in a bank CD which typically earns only a fraction of what an annuity can provide.
Speak with a qualified retirement income professional that can look at your particular situation and help determine the best course of action for you.