Two huge data breaches made front page news in the past two weeks. Home Depot discovered its systems were compromised in September exposing the data of 56 million credit and debit card holders. The good news, at least for now, is there’s no evidence the personal identification numbers for customer debit cards were compromised.
The straight line winds that struck Dallas last week sheared limbs from trees and blew a lot of trees over. Some had their trunks snapped while others were simply pushed over exposing their roots by the 75 plus mile per hour winds. When the trees fell, they landed harmlessly on a person’s yard, or they landed on the homes they shaded, cars parked in the driveway, or other structures. Seeing the destruction a tree can cause, I was reminded of a claim I saw early in my career.
A storm rolled through Dallas last Thursday with straight line winds between 75 and 90 miles an hour. The rain fell sideways and the wind snapped tree limbs, toppled trees, and knocked out power to 300,000 homes and businesses. 85,000 homes and businesses were still without power as of late Saturday.
Annuity Considerations
Last week, I wrote a post introducing the two basic types of annuities, deferred and immediate, as well as the two ways they can be structured, fixed or variable (see http://50.87.248.161/~wiseinsu/introduction-annuities/). The big question is, are annuities right for you? Some financial writers, bloggers, and advisors hate them, others sing their praises, and yet others are more in the middle. With that in mind, let’s examine what you should consider before buying an annuity.
Fixed Annuities: One of the advantages of a fixed annuity, is that it provides a steady income stream in retirement, you know exactly what you’ll receive each month for the duration of the annuity. There are, however, a number of things you should consider before buying one on that basis alone.
We are currently enjoying relatively low rates of inflation. If inflation begins to rise at a steady rate, it will eat away at the buying power of your steady income, meaning you’ll be able to buy less with each dollar you’re paid. This is the same dilemma many retirees are facing who rely exclusively on social security income.
If interest rates go up, will you be able to take advantage of the higher interest rate or will you be locked in at the current lower rate? If you’re locked in at the lower rate, making a change could subject you to surrender charges which would take a huge bite out of the money you’ve invested in the annuity. If you’re able to adjust to the higher rate, it’s important to know when you may take advantage of them, how frequently this can be done, if there are any fees or expenses that will be charged for the change, as well as any other stipulations that may come back to bite you.
There are some companies advertising fixed annuities offering up to an 8% interest rate. Before buying one, find out if the interest rate is for a year or some other term. Look closely at the fees too; a bigger interest rate usually indicates higher fees and expenses.
Variable Annuities: One of the advantages of a variable and equity index annuity, is that when the market rises, as it has for the past few years, your annuity grows with it. As the market declines, so does your annuity. There is a higher risk / reward aspect which should be examined to ensure it fits with your financial personality.
Variable annuities usually have higher fees and expenses associated with them than fixed annuities, and in many cases, than comparable indexed mutual funds. In a recent Dallas Morning News article by Scott Burns, indexed mutual funds were earning almost 2.5% more with fees averaging half that, or lower, than comparable variable annuities.
In addition, some variable or indexed annuities will have participation fees. In return for guaranteeing a minimum return if the market takes a severe downturn, they impose a cap on the maximum return you can make. For instance, if a similar mutual fund were to earn say 14% for the year, your annuity would be capped at somewhere between 8% and 12% with the insurance company holding onto the difference.
In both cases, survivor and death benefits should also be closely examined. For married couples, what happens to the annuity when you or your spouse dies? Will they be able to receive income from the annuity? Will it be at the same or a lower monthly amount, or will it be paid in a lump sum similar to a life insurance policy? Are you able to leave any unused funds to your heirs or will this go to the insurance company?
Based on these considerations, I do not recommend annuities as an exclusive retirement vehicle for anyone. I believe better returns are available with lower fees in mutual funds, and that a steady income can be achieved with a couple of rental properties. That said, I also believe an annuity can provide one of the pieces of a sound retirement strategy.
What do you think? Share your thoughts, questions, and opinions with us in the comments section of our blog or on our Google + and Facebook pages. I’d love to hear from you!
Autonomous or driverless, cars have been in the news a lot in the past few weeks. General Motors CEO Mary Barra announced in early September Cadillac will introduce a model in 2016 which will be equipped with its Super Cruise technology. Super Cruise provides, at least initially, the ability for the car to drive itself on the freeway by handling the duties of accelerating, braking, and steering the car.
Last week I introduced 5 things no home insurance policy covers. These are acts of war, nuclear meltdown, flood, earthquake, and sewage back up (see http://50.87.248.161/~wiseinsu/home-insurance-doesnt-cover/). It would be nice to think our home policies cover everything, but they don’t. In fact, last week’s list was only a partial list of what home insurance policies don’t cover. Here are three more items no Texas home insurance policy covers.
Yahoo posted an article by Popular Mechanics on Monday which listed 6 futuristic safety technologies arriving now on some 2015 models. It’s an impressive list that provides us with insight into where car technology is headed as car manufacturers seek to make safer vehicles.
I helped several people with their home insurance last week. They all own or are buying homes in the Dallas / Fort Worth area. In each case I discussed what their new home policy covers, but one seasoned home owner asked me something different and that was what does his policy not cover.
More people are buying new cars as we continue to see the U.S. economy slowly improving. These new car buyers are replacing older cars that they’ve driven longer. Another factor that’s helped people move forward with new car purchases are the low interest rates we’ve enjoyed the past several years.
There are 4 plans that will be offered under the Affordable Care Act. Enrollment will begin on Tuesday, October 1 however pricing was released on Wednesday, September 25. So this is a good time to compare pricing, especially if you’re self-employed or pay for an individual policy through Blue Cross, Aetna, etc.
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