As our nation struggles through the mother of all recessions, it's no surprise that U.S. investors are feeling a little gun-shy. After all, retirement account assets lost $2.8 trillion or 32% of their value between September 2007 and December 2008. No wonder Americans are overcome with investment doubt.
In this drag of a market, consumers aren't sure where to turn for a truly stable retirement investment. Many folks are asking whether insurance products, like fixed annuities, are even a safe choice in this environment - especially as they stand by and watch a few major insurance carriers stumble.
Of course, financial professionals and insurance agents are quick to assure their clients that they can always play it safe with fixed annuities. Still concerned? Read on to learn what makes insurance products, particularly fixed annuities, a safe bet for any investor - even in today's volatile market. (For some background info, read An Overview Of Annuities.)
A Long, Stable History
As compared to banks and brokerage firms, insurance companies have a historical record of stability. This is largely because insurance companies offer conservative investment options that carry very little risk.
Just think: insurance companies have survived times of war, depressions, government failures, industry scandals and disastrous stock market plunges. Even in the worst of times, Americans have been able to safely insure their homes, health, life, cars and businesses. And through it all, no insurance policyholder has ever lost a single red cent of their invested principal with an insurance company.
A Bullet-Proof System
What makes an annuity so secure? First of all, each investment product offered by an insurance company must be approved by the state Insurance Commissioner. This ensures that insurance products offer the utmost stability for consumers. It also guards investors against insurance company failures.
Of course, you've probably heard plenty of bad news about a few major insurance companies taking a tumble in these tough economic times. However, when an insurance company meltdown seems imminent, the state Insurance Commissioner jumps into action to resolve the problem. To help pay for rehabilitation, mergers or the liquidation of failed insurance companies, Insurance Commissioners have the authority to levy fees on other insurance companies operating within their state.
That means your investment is protected - and you won't lose a dime. Over the years, this system has proven to be incredibly effective. (Learn more in Are You Protected If Your Insurance Company Goes Belly-Up?)
Because fixed-rate annuities offer a guaranteed minimum rate of interest, these investments are particularly appealing to apprehensive investors - and who doesn't fall into that category in these turbulent times? These guarantees are, well, guaranteed, even in a tough economy. Let's review this one more time: a fixed annuity holder has never lost a penny due to market losses. Can you say the same for stockholders or IRA investors?
Index-linked annuities are still safe, too. These annuities offer investors the potential to earn more if the market-linked index rises. However, if the market plummets as it has in recent months, the annuity is guaranteed not to lose value.
Plus, there are countless other advantages to investing in an annuity, including:
- Income tax deferral until withdrawal
- Penalty-free withdrawals to cover emergencies
- Protection from creditors (in most states) in qualified plans
- Complete control over your money if circumstances change
- Probate-free transfers at death
- The right to convert to a guaranteed lifetime income
Dispelling the Nasty Rumors
Unfortunately, fixed annuities (particularly index-linked annuities) have gotten a bad rap in recent years. Word on the street is that Wall Street stock brokers may have cooked up these nasty rumors. After all, annuities have lured many investors away from mutual funds - products sold by stock brokers.
No matter who's to blame for smearing the annuity's good name, the bad reputation is completely undeserved. Fixed annuities are still extremely safe.
As a matter of fact, these products may offer the ultimate protection in tumultuous economic times. While the current recession has led to huge losses on market investments, fixed annuities have remained loss-free. On top of that, these investments continue to earn a guaranteed minimum rate for annuity holders and will likely pay extra interest when the market recovers.
While you may not strike it rich with these relatively conservative investments, you can steer clear of major losses by investing in a fixed annuity. And in the current market, protecting your nest egg is the key to a happy, comfortable retirement.
So, are annuities still safe? The answer is a resounding yes. Talk to your financial advisor or insurance agent about the advantages an annuity has to offer. (For more, check out Annuities: How To Find The Right One For You.)
Mutual Funds & ETFsLearn more about the PowerShares FTSE RAFI Emerging Markets ETF, a fundamentally weighted fund that tracks emerging market equities.
Mutual Funds & ETFsLearn more about the iShares California AMT-Free Municipal Bond exchange-traded fund, a popular tax-advantaged ETF that dominates its category.
Mutual Funds & ETFsLearn more about the SDPR S&P Emerging Markets Dividend Fund, a yield-focused exchange-traded fund tracking global emerging economies.
Mutual Funds & ETFsFind out about the First Trust Dow Jones Global Select Dividend Index Fund, and learn detailed information about characteristics and suitability of the fund.
Mutual Funds & ETFsLearn about the United States 12 Month Natural Gas Fund, an exchange-traded fund that invests in 12-month futures contracts for natural gas.
Mutual Funds & ETFsExplore detailed analysis and information of the iShares Floating Rate Bond ETF, and learn how to use this ETF as a defense against rising interest rates.
Mutual Funds & ETFsFind out information about the ProShares UltraPro Short S&P 500 exchange-traded fund, and learn detailed analysis of its characteristics and suitability.
Mutual Funds & ETFsLearn more about the SPDR Barclays Investment Grade Floating Rate Fund, which tracks an index of highly rated floating debt securities.
Mutual Funds & ETFsLearn more about a unique and innovative exchange-traded fund (ETF) in the biotechnology industry: the ALPS Medical Breakthroughs Fund.
Mutual Funds & ETFsLearn about the iShares U.S. Healthcare exchange-traded fund, which invests in a wide range of health care providers, hospitals and home care facilities.
A security that tracks an index, a commodity or a basket of assets ...
A Qualified Longevity Annuity Contract (QLAC) is a deferred annuity ...
Investopedia explains the definition of exchange-traded mutual ...
Someone designated by an annuitant to receive the annuitant’s ...
Living and death benefit riders are a descriptive class of contractual ...
A financial product that pays out a fixed stream of payments ...
The best ways to sell an annuity are to locate buyers from insurance agents or companies that specialize in connecting buyers ... Read Full Answer >>
Non-qualified variable annuities are tax-deferred investment vehicles with a unique tax structure. After-tax money is deposited ... Read Full Answer >>
You can roll qualified variable annuities, such as other qualified retirement plan accounts, into a traditional IRA. Non-qualified ... Read Full Answer >>
Variable annuities are insurance contracts that provide tax-deferred growth of assets that can later generate a guaranteed ... Read Full Answer >>
If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>