By Kim O’Brien, Executive Director of the National Association of Fixed Annuities
Earlier this month, General Motors was at the center of some controversy when the automaker unveiled that it would be converting its pension payment plan for 118,000 salaried retirees as a means of shoring up the company’s finances. The announced plan would offer buyouts to currently retired salaried workers who agree to stop receiving a monthly pension check and opt instead for a lump sum payout or equivalent monthly annuity checks paid out by Prudential Insurance Co.
So, where does this leave GM’s retirees? Some have expressed reservations that, in transitioning from pensions to annuity payouts, they stand to lose the security of their payments because annuities are not secured by a federal authority like the FDIC, and will have to forgo cost-of-living adjustments.
However, it is important to note that fixed annuities are STRONGLY protected and secured. In fact, it already comes insured by the company who issued the annuity.
In addition, annuities have a secondary level of protection set in place by state guaranty associations under the umbrella of the National Organization of Life & health Insurance Guaranty Associations. These non-profit state associations provide a safety net for policyholders and ensure that you will continue to receive annuity benefits if your insurance company becomes insolvent. It is important for you to know your state’s coverage amounts so you can make the right buying decisions. To learn more about what your state’s guaranty fund association covers, click here for a full list of each state’s guaranty fund association and their websites.
Additionally, annuities are highly customizable and can be purchased with the option to adjust payouts to increase with the cost of living and inflation.
What’s more, in a world where pensions will continue to become increasingly rare, fixed annuities offer a measure of security by providing payments that can be counted on, without any risk of loss. Additionally, with an annuity, policy holders have the option of collecting payouts from the annuity over the course of their lifetime, countering the risk that a retiree can outlive his/her income. Annuities also provide retirees with the benefit of tax deferral.
As the landscape of retirement funding continues to change, annuities represent a vehicle for secure savings that is mutually beneficial to both employers and employees.