Insurance Quotes & Advice

Although annuity sales are expected  to climb at a steady rate as the baby boomer generation retires, variable annuities have taken a big hit recently due to the recent 40% decline in equity markets.  Variable annuities were introduced by life insurance companies as a way to compete with the growing popularity of mutual funds.

Many financial experts have long criticized variable annuities for their exorbitant fees compared with mutual funds but in difficult economic times like this, their saving grace is their guarantee from loss of the initial principle.  That being said, fixed annuities have surged to the forefront as will likely be the case with the bond market.

Fixed income assets while they won’t offer spectacular gains will provide a steady source of income as equity markets are expected to struggle for some time to come.  A looming concern for investors of annuities will be the solvency of the insurance companies they were purchased from.

The insurance sector like their brethren in the financial services industry have also been hit hard during the credit crisis.  Though no other company has made headlines like the near collapse of insurance giant AIG, still there is great uncertainty in the new year.

For the most part annuities have some limited protection, kind of like FDIC insurance for bank deposits.  However, since insurance is not regulated by the federal government, each state sets it’s own limits on how much is guaranteed in case an insurer goes insolvent.

It will likely take some time for variable annuities to rebound despite the fact that this is one of the few conditions that they will outperform mutual funds.

A recent Bank of America survey revealed that many Americans believe that they will have to work longer than they had initially planned in order to save for retirement.   

The 2008 Bank of America Retirement Savings Survey, which reflects the mindset and behavior of approximately 1,000 people across the country, finds that six in ten (60%) Americans are spending less than they were three months ago as a result of the current economic climate. However, even with this decreased spending, more than half (51%) of the general public and 40 percent of affluent Americans are also saving less than they were three months ago - with approximately one in five citing that they’re saving “much less.”

The deepening economic downturn which has seen the stock market plummet over the past year has decimated retirement funds and pension plans for many Americans across the country.  Even before the downturn began there was already a growing problem that many Americans were ill prepared for retirement.

Added to that, the clock is still ticking on Social Security which is expected to go bankrupt sometime around 2040.  Coupled with pending bankruptcy of Medicare around 2020, you can see why many older Americans are concerned.

With the federal government spending insane amounts of money to fix the financial system, it is unlikely they will be able to find the funds to meet all the unfunded obligations above.  This year’s budget deficit alone will top $1 trillion and who knows how much they will spend next year to get the economy out of recession.

The longer this recession last, the more people will be likely to tap into their nest egg in order to meet current demands.  It’s a big problem for the baby boomer generation which will be steadily entering retirement age over the next ten to fifteen years.

Since the introduction of variable or indexed annuities, which insurance companies introduced to compete with the growing popularity of mutual funds, annuity sales have risen steadily every year.  However, annuity sales have skyrocketed over the past year as a tidal wave of baby boomers are about to hit retirement age.

With life expectancies on the rise, there is a growing fear for many Americans that they will outlive the assets which they have accumulated over a lifetime.  There is also a lack of confidence in the Social Security system and it’s ability to remain solvent for more than another couple of decades, which is why they have grown popular even with the younger generations.  The decline in the stock market since the end of last summer has also played a major role in it’s rapid growth.

It is important to choose carefully which insurance company to purchase an annuity from.  As the current economic downturn has proven, even the insurance industry isn’t immune to losses.  Due to the open ended liabilities these type of financial products incur for insurance companies, financial strength should be a primary concern.

Different retirement strategies may offer the possibility of higher rates of return as well as similar tax benefits but none of them offer the type of guarantees which you can only find with annuities.  No other type of investment offers the ability to receive guaranteed income streams for the rest of your life.