If you currently own annuities, you’re not alone. Millions of Americans are depending on annuities as a large part of their retirement portfolio. I’m sure, with the changes in the economy, and none of them looking particularly promising, you may have wondered if your annuities will, in fact, provide the retirement finances you are hoping for.
As you probably are already aware, an annuity is a contract between you and an insurance company. Typically, investors enter into an annuity contract by funding it with a lump sum. In return for your investment, you receive periodic payments from the company, along with the benefit of having this return deferred from taxes.
A blanket generalization can’t be made as to whether annuities are a sound investment strategy or not, since there are both good and bad annuities. By choosing the right annuities, you’ll help to fund your retirement lifestyle for the duration of your life, even if your other assets run out.
Because of this promising feature and the current changes in the economy along with troubled AIG, many are wondering about the safety of their annuities, and rightfully so. Keep reading…we’ve got some answers for you.
Good News for Annuities
There’s good news for annuity owners. First of all, the AIG subsidiary that sells annuities seems to be financially sound. AIG’s situation can be compared to CONSECO Holding Company that declared bankruptcy back in 2002. Although the company declared bankruptcy, the subsidiary insurers continued to operate.
Fixed Annuities
Furthermore, if your particular annuity company does run into financial trouble while you are in the payout phase of your fixed annuity, your payments should go on uninterrupted. Worst case scenario, your payments could be reduced, but it’s highly unlikely for them to stop or fail to pay completely.
Variable Annuities
In the case of variable annuities, it’s important to understand that the assets connected to your annuity contract are separate from the assets of the insurance company itself. This means that your investments are subject to changes in the market, which isn’t always a good thing. When determining your risk tolerance, fixed annuities are a much more prudent investment strategy.
Smart Investing Involves Knowing What You Own
Even though it’s highly unlikely that you’ll run into serious trouble with your annuities, it’s always wise to research the financial health of the company providing your annuities. The more you know by taking an active part in your annuities and investments, the less likely you are to run into surprises.
If you decide to seek the help of a financial advisor, be sure to work with a Registered Investment Advisor (RIA) and not a wealth manager or financial advisor. Why? Because Registered Investment Advisors are required by law to uphold the highest standards of investing and place the interests of their clients first. On the other hand, financial advisors are, by contract, obligated to put the interests of the broker-dealer ahead of the investor. Financial advisors may receive certain perks or high commission percentages for pushing certain items. Registered Investment Advisors don’t operate this way, so they are your best bet for sound financial advice.