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Published:
January 3, 2008

Annuities For Dummies

Overview

Looking for steady retirement income? Read this book!

Turning retirement savings into a steady income is a big step toward a worry-free retirement. This book introduces you to how to add annuities to your investment mix. It helps you evaluate how to select the best annuities for your needs and steer clear of the worst. You’ll learn how different types of annuities can help you turn your retirement savings into a monthly paycheck, protect your investments from market ups and downs, postpone taxes, stay in your home for the rest of your life, and even buy long-term care insurance for less..

Written by an annuity thought leader who is a frequent guest-expert on webcasts,

podcasts and radio broadcasts as well as editor and publisher of Retirement Income Journal, the book offers the knowledge earned from interviews with hundreds of annuity industry insiders on their own turf. Get insight into which annuities do (or don’t) provide near-retirees and retirees with solid value.

  • Stretch your savings into lifelong income
  • Ask smarter questions when talking to an agent, broker or adviser
  • Retire with less anxiety about the market
  • Feel more in control of your financial life

Annuities For Dummies is the must-have guide for anyone making retirement plans or managing their retirement savings.

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About The Author

Kerry Pechter is the senior editor of Annuity Market News. As a reporter who writes about annuities and the annuity industry full-time and as a former marketing writer who specialized in annuities at The Vanguard Group, he brings both an outsider’s and an insider’s perspective to the writing of this book.
A financial journalist for many years, Kerry has written for the New York Times, the Wall Street Journal, the Los Angeles Times, and many other national and regional publications. His previous books include two career guides, A Big Splash in a Small Pond: How to Get a Job in a Small Company (Fireside) and An Engineer’s Guide to Lifelong Employability (IEEE). He is a graduate of Kenyon College.

Sample Chapters

annuities for dummies

CHEAT SHEET

Assess your personal situation and follow some basic guidelines for determining if an annuity is right for you. After you decide to buy an annuity, figure out how to shop for annuity contracts and how to use one to make your retirement years financially safer.Tips for deciding on an annuityIf you’re considering an annuity, take a serious look at your personal situation.

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Articles from
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Assess your personal situation and follow some basic guidelines for determining if an annuity is right for you. After you decide to buy an annuity, figure out how to shop for annuity contracts and how to use one to make your retirement years financially safer.Tips for deciding on an annuityIf you’re considering an annuity, take a serious look at your personal situation.
Index annuities were created in 1996, when investors were shifting their attention from bond-based investments like fixed annuities to stock-based investments, including mutual funds and variable annuities. (The greatest stock market rally in the history of the universe was well underway by then.) To capitalize on the excitement over stocks, some insurance carriers started marketing a new kind of fixed annuity, called an equity-indexed annuity, or EIA.
As baby boomers enter retirement age, estate planning and sound investing loom large as they plan for a happy retirement and for leaving their children a legacy. Annuities offer a way to invest your money without the fear of losing it all to the whims of market forces. What is an annuity? Put simply, annuities are investments with money-back guarantees.
Would you buy an insurance policy today that would cost you about one-fifth of your savings and pay you a guaranteed lifetime income starting at age 80 or so? If you died before age 80, you'd lose your original premium, but if you lived to age 85 or 90, you'd eventually get back much more than you paid up front.
A fixed deferred annuity is the insurance industry's version of a savings account. It helps you earn a modest rate of interest safely and allows you to postpone the payment of income taxes on your earnings for as long as you want. Fixed annuities sometimes offer higher interest rates than competing investments, such as CDs (certificates of deposit), because the insurance carrier puts your money in longer-term bonds, which typically offer better returns than short-term bonds.
Annuities are complex but useful financial tools. Be aware of the latest annuity trends when you are buying and make sure you stay aware so your annuity continues to benefit you in the best way possible. The following checklist shows important reminders for you to track annuities: Recognize that the annuity world changes.
If you've made the decision to look for an annuity contract, keep this list on hand and cover every option it gives, so you can be confident you're staying on top of the annuities game. Find an annuity-savvy adviser. Income annuities aren't yet widely used, so not many advisers or brokers understand them. Try to locate a professional who does.
Fixed deferred annuities offer safe, but low, returns and tax deferral. Risk-averse investors buy them when they offer higher interest rates than CDs, when the stock market is declining or appears headed for a fall, and when they’ve already parked as much money as possible into other savings vehicles, like employer-sponsored retirement plans.
Although fixed deferred annuities are a relatively safe investment, there are also reasons why people tend to shy away from them. They include the following: Low liquidity: Generally, if you take more than 10 percent of your money out of your fixed annuity during any single year of the surrender period, you pay a charge.
Technically, every annuity has two phases: accumulation and income. During the accumulation phase, you put money in the annuity account (paying all at once or making a series of payments), and it grows tax-deferred. During retirement, you initiate the income stage by converting it to an irrevocable income stream.
If you're considering an annuity, take a serious look at your personal situation. Examine the following points when shopping for an annuity to see what type best fits your needs or if you should even get an annuity: Assess your needs. After you estimate your living expenses in retirement and identify all sources of income, you'll know whether you'll need an income annuity.
A fixed deferred annuity is the insurance industry’s version of a savings account. The annuity helps you earn a modest rate of interest safely, and allows you to postpone the payment of income taxes on your earnings for as long as you want.When you buy a fixed deferred annuity, you’re indirectly lending money — without taking the risk that the borrower won’t pay you back.
Although insurance companies usually assume your interest-rate risk when you buy a fixed annuity, that’s not always the case. With a market value-adjusted (MVA) fixed annuity, you assume the interest-rate risk. In return, the insurance company can afford to pay you a slightly higher interest rate than it pays on non-MVA annuities (book value annuities).
The single-year guarantee fixed annuity is like an adjustable rate mortgage in reverse. With this annuity, the insurance company promises to pay you a certain rate of interest for one year. But each year until the contract expires, the insurance company can raise or (more commonly) reduce that interest rate. The new rates are called renewal rates.
All annuity contracts share the same basic DNA. The following sections describe the participants who have a hand in all the annuities you'll run across. The owner The owner of an annuity is just that — the owner. This person Pays the premiums Signs the application Agrees to abide by the terms of the contract Decides who the other parties of the contract will be Can withdraw money or even sell the annuity (depending on the type of contract or the stage it's in) Is liable for any taxes that are dueTwo people can own an annuity contract jointly.
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