Not all annuities are the same

One of the safe retirement investment options currently on the market are annuities. It might surprise you as these have a reputation as unsafe financial products. Anyway, the truth is that there is very much confusion about annuities.

Such investment vehicles are not all the same. Except variable annuities, there are other similar options which are much safer, like fixed annuities. However, as some condemn all annuities, others tend to present the variable type as the one which can generate the higher gains.

Misleading information and an improper knowledge about these products is what leads people to choose variable annuities for their retirement plans. One the one hand, it is true that this option allows you to get high returns, but this opportunity is to set against some factors that can compromise your retirement income.

What are variable annuities?

Variable annuities are a security and consist in a mutual fund subaccount which includes fees that can reach 7%. These include extra fees that not every investment option has and can be therefore avoided. Variable annuities, in fact, are insured by an insurance company that normally charges management expenses along with other fees.

As the name suggests, the gains generated by this type of financial product can considerably vary as they are highly influenced by the market performance. It means that if you invest an amount of money today, an economical downturn can produce a negative return causing you to lose part or all of your money. That considered, variable annuities are definitely not the best way to ensure a fruitful retirement.

What makes variable annuities risky?

The worst thing about annuities are the many fees you’ll need to pay and that not every financial advisor will tell you about. When planning your retirement you most probably consider important to ensure a safe, steady income. One of the most important things to avoid is unnecessary fees.

In the case of variable annuities, up to 2% of the fees consist in management fees, which are due to the peculiar way this investment option is managed. To these, you have to add up expense fees that, like management costs, you will need to pay to the insurance company that manage your account even in case it crashes.

From this point of view, variable annuities differ considerably from other accounts that only include fees related to your contributions payment or money withdrawals. As experts say, the many fees included in a variable annuity can seriously compromise your gains as you might end up losing money even if your investments do well.

Federica writes for First Senior Financial Group, providing investment education to people at or near retirement with a team of Philadelphia retirement financial advisors. 

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On January 28, Bloomberg published an article focusing on the Bordeaux 2010 vintage which will soon start hitting the retail shelves and which, being recommended by winemakers, is bound to attract the attention of people who invest in wine.

The 2010 Vintage

The author of the piece, Elin McCoy, attended a wine-tasting at which110 top Bordeaux producers presented their reds and whites from the 2010 vintage. Ms McCoy noted that while the quality of the 2010 vintage was exceptional formany chateaux, the futures prices were so high that therewas likely to be stock languishing in warehouses, especially given that a lot of Bordeaux lovers filled up their cellars with the 2009 vintage.

As noted in an article by the wine magazine Decanter, entitled “Bordeaux 2010 report: Fatigue, readjustment, and a missed opportunity”, the2010 vintage has been hailed as the second-most successful vintage of all time, 2009 being the record-breaking best, 2005 in third place.

Winemakers’ Choice

Yet Ms McCoy noted that,while the winemakers she interviewed insisted that both 2009 and 2010 were great vintages, they preferred their 2010 wines. “The 2010s are more electric, more detailed, like high-pixel images,” according toAlexander Van Beek, general manager at the commune of Margaux, as quoted in the Bloomberg piece.

Decanter consultant editor Steven Spurrier also enthusedthat the 2010 vintage “is looking like THE greatest Bordeaux vintage, so far, and, contrary to expectations, not tiring to taste.”

High Prices

With all the positive reviews, 2010 is plainly a vintage to consider. Yet the high prices could potentially discourage manywilling to invest in wine. Ms McCoy quoted Olivier Bernard of Domaine de Chevalier as blaming wine investment funds for the high prices. “Wine should be drunk with a smile,” Mr Bernard points out. “If wine lovers pay too much, they don’t smile. They may buy once without a smile, but they won’t do it a second time.”

In a phone interview, Gary Boom, managing director of the UK’s Bordeaux Index,pointed outthat massive amounts of 2009 futures were sold even at high prices, “but only half of that with the 2010s” since “people had already spent their money.”

So wine investors who didn’t spend their money on the 2009 vintage and are thinking whether to invest in wine could potentially consider the 2010 vintage as an wine investment option.

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Investment is the buzz word nowadays and with the volatility and the uncertain global situations, it would be a boon if investments would ensure that you get consistent income over life time, especially when you are nearing your retirement years.  This is where financial institutions like Banks try and sell Annuities. Annuities are financial instruments which provide the benefit of interest accrual along with the benefit of deferred tax.

This means that while the investment accrues compound interest over the course of few decades, there is just a one time tax at the time of withdrawal. The biggest benefit is that the interest is accrued until an age of 80 years or even more, perhaps the longest amongst all other forms of investment.

In a usual process, a bank representative sells annuities of the insurance company which has tied up with the bank. Even though annuities are a safe bet, there are many cases where unsatisfied consumers choose to withdraw from the product which has made this perception rife “Don’t Bank on Annuities”.

Are annuities really not that good?

First and foremost, annuities are not bad and offer unbeatable features in some respects vis-à-vis other products. But, almost selling of any other financial product, there are some agents who abuse the product as they are offered high commissions for it.

Bank Annuities

Earlier, banks used to offer annuities to a customer who wanted a little more than a deposit account. Banks take licenses so that some of their employees can sell the products. Upon successful sale, the employee is rewarded either through bank’s incentive program or through commission.

This results in twin benefits to the bank. The bank is not only able to generate additional revenues but also simultaneously able to maintain its relationship with the customer. Earlier, annuities were offered as the default investment option to consumers, but with the changing trends and newer products, banks with insurance licenses in the modern day world can offer a variety of options to customers.

Question the intent

Unless you have an old and trustworthy relation with your bank, you must raise questions if someone is trying to sell you an annuity scheme. For instance, one can ask why annuities are recommended and not other financial products? You can also ask whether the person selling the scheme has the relevant expertise to give you adequate information or whether the person has the license to provide something other than an annuity. This will only help you in having a better understanding of what you are investing into.

When it comes to putting your faith in money matters, having clarity will help you in achieving financial goals.

An honest person will guide you by explaining both the pros and cons as well as any alternative strategy which maybe better than annuity scheme. What must be really emphasized is that a customer must be made to understand everything.

Conclusion

Annuities were one of the first products which featured into the savings cum investment category. But, some unscrupulous elements have started making investors believe not to bank on annuities. If you can do a bit of due diligence and follow some of the above mentioned guidelines, this can prove to be the safest investment when it comes to providing rich returns.

This post is contributed by Adam Anderson. He has been using payday loans as one of the fastest option to get rid of his financial crunches.

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Babies are expensive but quite often people don’t realise quite how expensive they are. There’s no way that you can prepare for the added expenses that your family will have to deal with other than save from the moment you find out you’re pregnant. However, when your little bundle of joy is born there are loads of ways you can save yourself money so that you’ve got a little bit left over.

When it comes to having your baby you might find yourself in hospital for a few days so there are a few things you should remember when you’re there.

• Firstly, don’t use the TV; some hospitals charge as much as £6 per day to watch the TV so why not save that money and use the time to bond with your little one and recuperate as you won’t have time for recuperation and relaxation when you get home.

• There’s quite often a selection of toiletries in the cupboard including nappies, lotion, wipes and a thermometer, you should ask to take these things home – usually you’re allowed – to save yourself having to go out and buy loads as soon as you get home.

• Maternity wards in hospitals are always being plied with free samples and coupons too but generally nurses are too busy to give them out. If you ask they’ll be more than happy to give you whatever you have; a lot of the time there will be samples of baby lotions and creams as well as coupons for nappies and milk formula – you could save yourself loads.

Breast is best and it sure is cheapest. If you can’t breast feed then you obviously have no choice but to shell out on formula but if you can you’ll definitely notice the difference in your bank balance. A lot of people think that you have to have your own breast pump to express milk in advance but this isn’t the case, you can share them so if a friend or family member has one, as if you can borrow. The only thing you can’t share are the plastic attachments but you can buy those cheaply enough from chemists and even supermarkets. Borrowing a breast pump will help save you at least £100 if not more.

You should never buy too many baby clothes in advance; if you buy a winter coat in September it definitely won’t fit them by the time the cold weather hits so that’s quite a bit of money lost. Also, stick to neutral coloured baby clothes, that way you can use them again if you ever have another.

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When selecting the right loan for your situation, it’s necessary to look at a range of different factors; these range from the types of loans that are generally available, through to the importance of understanding interest rates and your how much your credit score determines what you can borrow. It’s also important to think about what the loan is for, and what options there are if you have bad credit.

Types of Loans

Loans can be divided into several broad categories, which include secured and unsecured loans. A secured loan is generally taken out against something valuable that you own, whether that be a piece of property, a car, or jewellery. The lender can choose to repossess an asset or sell it in order to pay off the loan. Secured loans do produce low interest rates and longer contract terms than unsecured loans, but with a higher risk of losing valuable assets.

Unsecured loans, then, represent forms of credit that don’t use assets, but are instead valued through their rates of interest – this might include a personal loan from a bank, a credit card, or an emergency or payday loan – these loans are worth considering if you need money quickly, and if you can take out a loan off the back of a positive credit score.

Interest Rates and Your Credit Score

How much you can stand to borrow and repay on a loan will depend on interest rates and your credit score. The base rate of interest is set by the Bank of England in the UK, and is currently at 0.5 per cent – most lenders will charge above this for loans, although mortgages can be taken out to match the base rate. In terms of an average loan, you can might pay 5.2 per cent on a £3,000 payment, with 1 year to repay – this 5.2 per cent interest will mean you repay around £230 a month to cover the loan.

Credit card interest rates are also variable, and can go from very low introductory offers to about 18.9 per cent and higher in interest charges per year. Payday loans, which are easy to apply for, but come with the understanding that you make a full repayment with interest at the end of a month, can charge up to 1400 per cent in interest for their quick lending.

The kind of interest rate you have to pay will primarily depend on your credit score, which is worked out through your past borrowing history, as well as through your employment and address history. A negative credit score can result from defaulting on loans, and from consistent periods of time away from work; this can make it difficult to get credit, and can mean that you have to work to rebuild your score with credit agencies such as Equifax, Callcredit, and Experian.

What the Loan is For

Whatever loan you need, remember to consider how much risk you’re willing to enter into – what is the purpose of the loan, and can you realistically expect to make repayments with interest within a given contract? Also, think about what kind of collateral, or assets, that you can afford to gamble with. If you do have bad credit, it’s similarly worth considering approaches that lower your personal risk – getting a loan with a guarantor can be useful, as they agree to make payments on your behalf if you are having problems. Borrowing against the equity in your home can also represent a calculated risk if you need to raise a significant amount of money in a short period of time.

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