Page 181 - DMGT515_PERSONAL_FINANCIAL_PLANNING

Personal Financial Planning

Notes Annuities can have other provisions, such as a guaranteed number of payment years. If you (and
your spouse, if applicable) die before the guaranteed payment period is over, the insurer pays
the remaining funds to the annuitant’s estate. Generally, the more guarantees inserted into an
annuity contract, the smaller the monthly payments will be.

Fixed and Variable Annuities

Different investors place different values on a guaranteed retirement income. For some, it is
critical to secure a risk-free income for their retirement. Other investors are less concerned
about receiving a fixed income from their annuity investment than they are about continuing to
enjoy the capital gains of their funds. Which needs and priorities you have will determine
whether you choose a fixed or variable annuity.
A fixed annuity offers you a very low-risk retirement - you receive a fixed amount of money
every month for the rest of their life. However, the price for removing risk is missing out on
growth opportunity. Should the financial markets enjoy bull market conditions during your
retirement, you forgo additional gains on your annuity funds.
Variable annuities allow you to participate in potential further appreciation of your assets
while still drawing an income from your annuity. With this type of annuity, the insurance
company typically guarantees a minimum income stream, through what is called a guaranteed
income benefit option, and offers an excess payment amount that fluctuates with the performance
of the annuity’s investments. You enjoy larger payments when your managed portfolio renders
high returns and smaller payments when it does not. Variable annuities may offer a comfortable
balance between guaranteed retirement income and continued growth exposure.

Self Assessment

Fill in the blanks:
1. An annuity is a contract between you - the annuitant - and an …………..company, who
promises to pay you a certain amount of money, on a periodic basis, for a specified period.
2. An annuity consideration may be made as a lump sum or a as a ……………payments.
3. Generally speaking, there are two primary ways annuities are constructed and used by
investors: ……………………….. .
4. Most annuitants choose to receive ……………payments for the rest of their life and their
spouse’s life.
5. ……………………..annuities allow you to participate in potential further appreciation of
your assets while still drawing an income from your annuity.
10.2 Asset Allocation and Diversification

10.2.1 Asset Allocation

So far, we’ve gone through how to determine what you’ll need for retirement, where you can
get your retirement savings from, what types of investment accounts you can put your savings
into and the benefits of long-term and tax-efficient investing. After all this you may now be
asking yourself, “What the heck do I invest in?”

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