Here’s Why Your Retirement May Be at Risk
Depending on who you ask, a fixed annuity is either a pragmatic retirement tool or a black hole. Many economists and financial planners stand behind the idea that a well-designed annuity is the best way for many people to manage their retirement. Others suggest that the short-term interests of those who design annuity programs and the long-term interests of would-be policy holders are misaligned.
There are any number of annuities, but at a glance people use the fixed vehicle to secure a steady stream of cash during retirement. Individuals will give some or all of their retirement portfolio to a financial institution that will (theoretically) grow the investment, and kick back a fixed amount to the policyholder. Anything above and beyond that, the institution keeps as payment for a job well done.
The obvious risk here is that the designers of the annuity package are in a position where they only stand to make money if they outperform the payment to the policyholder. In today’s economy, that means creative investing strategies — i.e. tolerating higher and higher risk. And junk bonds are just the beginning.