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Many types of retirement programs suffer from the problem of outliving your retirement funds. Annuities are an investment that provides an income that you cannot outlive. Most retirement funds depend upon a portfolio of stocks and bonds. We have all seen that the stock market can lose half its value in a matter of months. How would you live if the value of your investment portfolio lost half its value?
Annuities are a hedge against both catastrophic losses in your retirement funds and the astonishing advances in medicine that promise to greatly extend your life span. The basic fixed annuity pays a monthly amount for the balance of your life.
Annuities should be the contrarian base in most retirement portfolios, but they are not often found in portfolios designed by brokerage houses. Aside from the obvious fact that annuities provide little commission to brokers and no management fees, annuities have a yield slightly more than bank CDs. This yield figure is deceptive because it is not adjusted for the life span of the annuity. The longer you live, the higher your return on investment becomes. Other retirement investments vary in yield year by year and may have catastrophic drops in value for extended periods. Annuities pay the same fixed amount every month throughout your entire life.
Annuities are an alternative to long term care insurance. The progression from a 55+ community through independent living communities to assisted care communities is one of continually increasing cost. A fixed annuity can be written to both provide coverage of these costs and to leave an estate to your heirs. If your family history and personal medical condition indicate that you may have along life, an annuity can be a financially favorable alternative to insurance.
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