Annuity

An annuity comes in many forms, but a simple definition is that an annuity is a contract that converts a sum of money into a series of periodic payments for an agreed upon period of time. An annuity can be thought of as a financial vehicle that converts a pool of money into a stream of income. Annuities are most useful in addressing the financial planning needs of people in or approaching retirement. Annuities are unique in the financial world because they can provide protection against the risk or outliving one’s assets (longevity risk) by guaranteeing income payments in perpetuity or any other selected amount of time. Annuities can be viewed as a type of personal pension plan. Social Security is similar to an annuity in that money contributed over the course of one’s working years is converted into a series of periodic payments that provide income during retirement.

Investments that Hedge Longevity Risk are Surging

Investors seem to be aware of the fact that they need to hedge longevity risk . In other words, people are concerned about the risk of outliving their assets. Sales of deferred fixed annuities increased 60% in 2008. While many different types of annuity products may be used to hedge longevity risk, the longevity annuity may be optimal if the sole concern is in fact avoiding a scenario in which one outlives their money: "A 60-year-old with a $1 million portfolio but no pension might allocate...

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Advanced Life Deferred Annuity

Life Expectancy

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Retirement

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Advanced Life Deferred Annuity

Life Expectancy

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Retirement

MetLife in a Position of Strength

The U.S. life and annuity insurer MetLife appears to be in a strong position relative to its competitors. MetLife is one of the leading providers of variable annuities in the United States. At a recent industry conference, MetLife's CEO explained that one of his primary concerns involves extending the company's leading position by taking advantage of acquisition and new business opportunities that have resulted from the financial crisis: MetLife shunned U.S. rescue funds and padded its finances...

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Teacher's Insurance and Annuity Association of America Maintains Top AAA Rating

Moody's Investor Services indicated that it will maintain its highest (AAA) rating for the Teacher's Insurance and Annuity Association of America (TIAA) and its subsidiary TIAA-CREF Life Insurance Company. "TIAA has substantial capitalization and flexibility to maintain its financial strength in what is a very difficult economic environment," Moody’s Senior Credit Officer Arthur Fliegelman said in a statement. "However, the company has not been immune to environmental stresses, having...

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Bond Vigilantes Return with Inflation on Horizon

Yields on the 10 year Treasury have been climbing consistently over the past several days, ending above 3.7% today. Increasing interest rates are welcomed by insurers and consumers who are still considering an annuity purchase. The trend is troublesome, though, for those who have recently locked themselves into a fixed annuity without inflation protection. Similar to the 1970s and 1980s, global investors are driving up interest rates in light of concerns about inflation that could be ignited by...

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Moody's Optimistic on Life and Annuity Insurers

Rating agency Moody's released a brief that expresses a bit of optimism regarding life and annuity insurance companies: "Even if markets turn sour again, life insurers and reinsurers are considered to be fit enough to weather the financial and economic crisis because of their solid balance sheets..." While Moody's indicated that additional ratings downgrades may result if market conditions worsen, their own stress tests indicate that companies should be able to maintain their investment...

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