We insure our home, our car, and our lives, but should you insure your retirement income? For generations, the standard retirement plans for every employer have been pensions. Now, many of us bear the responsibility to fund our own retirement, but with healthcare advancements people are living longer, and they must now plan for a 25-30 year retirement. Many folks have found it stressful planning for a retirement that long, and they have taken comfort in insuring their income. Annuities, both variable and fixed, promise a minimum amount of income each year for the rest of your life, which will ultimately help people to create a self-funded pension plan.

Those concerned with how they will support their retirement years have started purchasing annuities for the income guarantee (subject to the claims-paying ability of the underlying insurance company), but they may also find that it is a much more complicated product than they had originally thought. A sales pitch guaranteeing minimum income for the rest of your life with limited downside risk can seem quite appealing, but before you sign on the dotted line, be sure that you understand how the product works. Annuities have a surrender period, if after a year you decide the investment isn't right for you, you will be forced to pay a hefty surrender charge in order for you to access to your cash. Annuities can also be a very expensive product; you must pay for both the investment exposure as well as the insurance guarantees. The mortality and expense charges, administrative fees, fund expenses, and the salesperson's commissions can eat up between 1 1/2 -3 percent of the value of your investment every year.

Lately, I have been helping folks to better understand what they own and how they should explore the possibility of other, more transparent and cost effective, alternatives. Annuities may be a good fit for those that stay up at night worrying about how they will fund their golden years, but if you commit to an annuity before truly understanding the ins and outs of the investment, don't hesitate to ask for some further clarity. Some folks are ultimately unpleasantly surprised when they learn about all of the layers of complexity and costs associated with a particular product, but for others, the peace of mind gained from realizing that you will not outlive your assets is well worth the hassle from dealing with cost and complexity.

Ethan Wade, Financial Advisor


(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).