Buy the Simplest Annuity that Meets Your Personal Financial Goals

Annuities are definitely not one size fits all, and they shouldn’t be bought or sold that way.  I have to agree with Stan “The Annuity Man” Haithcock on this one.  In his Marketwatch article, “No all-in-one annuity cures; take a ‘PILL’,” he compares an annuity to a Swiss army knife to see if one annuity can have all the tools needed for your retirement.  Spoiler alert: it cannot and that is something that Annuity FYI works to help consumers with all of the time.  

Annuities should be used as part of a retirement plan and the annuity you choose must be based on your individual needs and goals.  The author of this article doesn’t like using annuities for their growth potential and that is certainly his prerogative, but variable and indexed annuities do have their place in some retirement portfolios.  While they won’t offer the growth potential of some non-annuity products, they often offer better guarantees on your money and other benefits as well.

Stan prefers annuities to be simple and often, simpler is simply better.  His motto of using the PILL approach to annuities includes the benefits of principal protection, income for life, legacy, and long-term care.  If you are looking to solve any or all of those four problems, a simple annuity with low fees and short surrender charge time frames is best.  When shopping for an annuity, look for one that is trying to solve your immediate need, as opposed to an annuity that has everything.  

The more riders you add onto an annuity, they more you will pay in annual fees.  There is no reason to add on a death benefit, income rider, or add on confinement care expenses if you don’t need those things.  It sounds simple, but a lot of people go into buying an annuity with the mentality that they need everything.  If you have life insurance or long-term care insurance, you simply may not need an added rider and cost for your annuity.

Newer annuity products on the market are sometimes advertised as being “hybrids” that offer benefits of multiple types of annuities.  Stan doesn’t believe that these new products offer additional benefits, and he is right that you should tread carefully when considering them.  If you are looking for two types of protection or guarantees with your annuity, a so-called hybrid could be right for you if the cost brings you value. 

Also consider looking at an annuity to cover your main goal, like a lifetime income stream, and see if adding a rider on for something else is a better value in your financial plan.  Shopping around is the key to buying the right annuity, not necessarily the annuity that has “everything.”  Buying an annuity solely for an upfront bonus or a confinement care rider is rarely a good idea.  If an annuity has exactly what you need and offers one of these bonuses, great.  An expert financial advisor can help ensure that you do not purchase more than you need or less.

Written by Rachel Summit
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Weekly Markets Commentary, David Joy, Chief Market Strategist, Ameriprise Financial — October 15

With Days to Go, Investors Still Banking on a Deal

It is now Day 15 of the government shutdown, and just two days away from presumably hitting the debt ceiling. Until we know how this standoff unfolds, it is nearly futile to focus on fundamentals. Government economic reports have been delayed, confidence indices have fallen, and third quarter earnings season and its accompanying guidance is just getting underway.

It is a fair bet that the shutdown will have a discernibly negative impact on fourth quarter economic growth, and on earnings growth as well. The full extent of any damage won't be known until the impasse is resolved.

Beyond the prevailing uncertainty, there are a few interesting aspects of current market behavior that may offer some insight into what investors are really thinking. The first, and most obvious, is that not counting the two day run-up to 1,725 that followed the Fed's no-taper announcement in September, stocks are trading near their all-time high, as measured on the S&P 500. And it is the cyclical groups that are acting the strongest.

Clearly, this is not a market that expects a default to occur.

This same attitude seems to be reflected in the price of gold, which has fallen 3.5 percent since the shutdown began. The VIX index is also lower now than when the shutdown began, although it did spike sharply last week when a deal seemed less likely than it does now. The yield on the ten-year note has risen while the shutdown has been ongoing, from 2.61 to 2.69 percent.

Each of these reactions betrays little concern for the possibility of default affecting investors in the intermediate to longer-term. Defensive positioning can be seen in short-term Treasury securities that would be impacted more severely in the event of a default. For example, the yield on bills maturing on November 7 has climbed sharply from 2 basis points to 25 since the shutdown began. But that is more a function of the calendar and the expected length of a default, should one occur.

So far, there is little evidence that any significant economic damage has been done. Research firm ISI reports that compared to the experience of the 1995 government shutdown, this time there has been a far less pronounced downturn in its proprietary company survey, particularly among capital goods firms. And, after falling at the steepest rate since 2008 last week, the three-day moving average Gallup survey of economic confidence actually rose on Sunday.

So clearly, the overwhelmingly prevailing view is that some kind of a deal to extend the debt ceiling will be reached in time. And that is probably likely. We have become inured to these episodes over time, and have come to expect last-minute resolutions. Reportedly, progress toward a deal is being made, albeit slowly. But we will all breathe a little easier when it is finally in hand.

However, even if a deal is reached, there will remain the lingering issues of fourth quarter growth and earnings, and what impact the shutdown will have on each. There is also the potential chilling effect of any new short-term debt ceiling deadline, if that, in fact, is part of any deal that is struck.

Already, some economists have lowered their fourth quarter growth rates by between 0.5 and 1.0 percent. But so far that has not been the case with earnings expectations. According to The Wall Street Journal, citing numbers from FactSet, aggregate analyst estimates for fourth quarter S&P 500 earnings were lowered just 0.14 percent between September 30 and October 10.