Imagine for a moment that you took out a loan. Even though the lender told you how much the dollar amount of your monthly payment would be, they didn’t tell you how long you would have to continue making those payments. A similar situation can occur with annuities. This, in turn, can have an impact on the annuity supply.
Per the example of the loan, if the term is for just a very short period of time, you could end up with a low cost of borrowing. On the other hand, if you had to continue making those payments month after month, year after year, for a lengthy period of time, your borrowing cost could be astronomical. In fact, in some cases, it may not even be worth your while to borrow the funds in the first place.
Sources of Guaranteed Income in Retirement
When you retire, it is possible that you’ll have more than just one source of retirement income. These could include:
- Employer-sponsored defined benefit pension
- Social Security
- Interest/dividends from personal savings and investments
- Rental real estate
- Reverse mortgage
Yet, even if you can count on incoming cash flow from one or more of these income generators, you could still find that you have a “gap” between your outgoing expenses and the income that is needed to pay them. That’s where an annuity could come in.
Annuities have become a popular financial vehicle for many retirees who need a reliable income. An annuity could even continue to pay out for the remainder of your lifetime, regardless of how long that may be.
But over the past several months – and particularly since the COVID-19 pandemic – insurance companies that offer annuities have had a difficult time contending with increased stock market volatility. Combined with exceedingly low interest rates, it can be difficult for retirees to make ends meet.
Given these economic conditions, insurers have not been able to adjust their annuities fast enough to keep these products on the market. Therefore, even some of the big sellers of annuities have had to pull these products off of their proverbial shelves. In some cases, the annuity supply is reduced temporarily, and in others it is permanent.
But Wait, There’s More!
Due to our current economic environment, the issues that annuities “solve” – such as guaranteed income and tax-deferred growth – actually make these products more popular. Even many economists agree that “buying annuities can be a better option than putting all of your assets in bonds.”
However, with a possible lack of annuity inventory going forward, it could be a while before some insurance carriers begin to return annuities to their shelves. This, in turn, could end up skewing the timing of retirement for many people – in particular, those who don’t have access to income from an employer pension and/or Social Security retirement income benefits.
Should You Dive into the Annuity Market Now?
At this time, there are still many annuities to choose from in the marketplace. But, because all annuities are not alike, it can be beneficial to work with an advisor who is an annuity or retirement income specialist. That way, you will be in a better position to ask questions about how the annuity will work, as well as to compare different annuities against one another.
At Annuity Gator, our mission is to educate consumers and financial professionals about “all things annuity.” This not only includes the income-related features but other enticing benefits, too. These can include tax-deferred growth, penalty-free withdrawals in certain situations (such as following the diagnosis of a chronic or terminal illness, or the need to reside in a nursing home,) and protection from creditors (in some states).
If you would like to set up a time to chat with an Annuity Gator research specialist, please feel free to reach out to us directly via phone at (888) 440-2468. Or you can send us an email by going to our secure online contact form. We look forward to assisting you.