Thursday, February 24, 2011
One great way of creating a gradually disbursing retirement benefit while still keeping the long-term savings portion of your money conservatively invested is to create a bond, annuity or CD ladder. These ladders are separate investment instruments with varying maturity dates that allow you to take advantage of long-term savings rates while still making sure that some of your money is readily liquid when you need it. This strategy is called "laddering" because each maturity date is its own rung on the ladder of your retirement years.
While each ladder is a great strategy in its own right, it's important to understand the differences between each of them before you decide which is (or are) right for your retirement plan.
Investors, especially those that experienced considerable losses and watched helplessly as their investment portfolios fell to pieces during the last stock market crash, are making much more cautious investment decisions today. A fixed annuity has gained a great deal of investor appeal for many cautious investors. Compared to alternative investments of equal risk, the fixed annuity has several significant advantages.
Fixed Annuity Advantages
There is the chance of significant appreciation when a lump sum is invested into a tax-deferred annuity, and the process is much quicker than a savings account or CD. The element of tax deferral is one of the most appealing advantages. Unlike other options where earnings are taxed each year, the tax-deferred annuity also allows taxes to be delayed or deferred until the money is withdrawn.
Young adults are often fearful of dying too soon and not living a full and long life. Ironically, this fear often changes as one reaches the age of retirement. Since many retirees are in the precarious position of possibly outliving their retirement savings, there is suddenly a fear of living too long.
No one should fear living too long. There are some possible solutions to the precarious situation. One is to use a fraction of your retirement savings to buy a fixed annuity contract. This will ensure that you'll have payouts for the duration of your life.
Financial markets have a tendency to capriciously fluctuate with little predictability. Meanwhile, due to the fact that annuity income is considered guaranteed, safe, and reliable, it can provide greater financial stability for one's retirement years.
For those unfamiliar with annuities, these are contracts between an insurance provider and yourself. You agree to fund the annuity. It can be funded with a lump sum of money that you might have or through a regular payment to the insurance company. Either way, the insurance company agrees to pay you a predetermined amount over an agreed upon time frame.
Most people find that being able to structure an income source that won't be outlived is one of the most appealing features of an annuity.
Health insurance cost and medical debt statistics continue to shock the general public, and with statistics like the following, it's no wonder. The Commonwealth Fund, a healthcare action nonprofit group, reported in August of 2009 that health insurance premiums for family coverage through employer-sponsored plans had a 119% jump in cost from 1999 to 2008. They further predicted that if the current trend continues, then family insurance premium costs would rise an additional 94% by 2020.
Despite clearly rising costs and the likelihood of future rises, most consumers realize that their current health insurance isn't sufficient protection to guard against accumulating mass uncovered medical debt. If not, then a quick look at a June sample study by The American Journal of Medicine may be a real eye opener, as it showed medical incidents drove 60% of all 2007 American bankruptcies. The sample study also showed that American families dealing with the repercussion of illness filed for bankruptcy every ninety seconds in 2007, despite three-quarters of those sampled having insurance.