As most of you know, our country continues to struggle with the adequacy of many people’s retirement savings.
We are in the midst of the baby boomer retirements, the largest such group ever to reach retirement age in this country. Yet, less than half of the boomers surveyed indicate that they have enough saved to provide for their retirement. And, unlike preceding generations, few boomers have a defined benefit pension plan that will provide guaranteed payments for life.
This is one reason why I have advocated adding annuities to my clients’ investment mix over the years. While annuities do not offer the same opportunity for growth as the stock market, many annuities offer protections against declines, and a number include lifetime income provisions that can provide a guaranteed income for life, similar to a pension plan (guarantees backed by the claims-paying ability of the insurer). Annuities are not the only component of a sound financial plan; however, their lifetime income capability is hard to match with other investment choices.
Recently, annuity sales have plummeted. There are two reasons cited for the decline. First, the Department of Labor issued new rules for the investing of retirement plan funds (401(k)s, IRAs, etc.) that took effect early in 2017. These rules do not prohibit the purchase of annuities using retirement funds, but they require greater disclosure and more oversight. While the rules have been modified since their initial application and some of the more onerous rules have been, or are being, suspended by the Department of Labor, there is little doubt that the confusion caused and additional work created by these rules contributed significantly to the decline in annuity sales.
Another contributing factor is the rise in the stock market in 2017. When the market is doing well, it is difficult for many people to consider that they should lock in some of their gains in a strategy that is designed to generate lifetime income rather than concentrate on capital appreciation. Then, when the market falls, few people are interested in selling their investments to buy an annuity because they want to recover their losses first. While I understand these arguments, the simple truth is that many people saving for retirement would be wise to add an annuity or two to their investment portfolio to assure themselves of at least some guaranteed income in retirement.
There are many types of annuities on the market, and it is very important to understand how each type works and which is best suited for your individual needs. All annuities are NOT created equal; that’s for certain. Learn about the different types and what they may offer for your retirement plan.
