Security for an uncertain future: A guide to annuities

Security for an uncertain future: A guide to annuities<

Annuities offer senior citizens and other long-term financial planners a chance to collect regular payments -- sometimes for the remainder of their lives.

An annuity is essentially a contract with an insurer. You pay a premium (or several premiums) upfront in exchange for the promise of a return on your investment over time. Whether you make a single lump-sum payment or multiple payments, the insurer has an obligation to return money to you at fixed future dates, according to the U.S. Securities and Exchange Commission.

The mechanisms of annuities can get complicated, but there are three basic kinds of arrangements:

• Fixed: According to the National Association of Insurance Commissioners (NAIC), a fixed annuity earns interest at the rates set by your contract.
• Variable: A variable annuity generally involves more risk, but it has potential for greater rewards. The insurance company invests premiums in bonds, stocks or mutual funds. If these investments do well, you may get a better payout. If they don't, you could lose your investment, according to NAIC.
• Indexed: One way to split the difference is to invest in equity-indexed annuities. This ties your annuity to an index, like the S&P 500. You are guaranteed a base return, but you may get even more if your index increases over the term of the annuity.

Some annuities are "single premium" -- that is, you pay one lump sum to an insurer. Others involve several premiums, meaning you pay over time.

Some annuities are called "immediate" annuities. Actually, the word "immediate" is somewhat misleading, as you may have to wait up to a year to start receiving income payments. Other arrangements are "deferred," meaning you'll receive payments years later.

Choosing the right annuity

Annuities can be useful for people planning for retirement. According to the Insurance Information Institute, annuities can help diversify your investments, prevent you from outliving your assets and protect your assets from creditors. In general, annuities are for long-term goals, not short-term financial fixes.

According to NAIC, factors that should influence your decision include:

• When you need or want payments.
• How much you can afford to invest in premiums.
• How easy will it be to gain access to your income.
• What penalties and fees apply if you withdraw funds early.
• How much money you will collect from Social Security, pensions and other investments.
• How much supplementary income you will need to pay for others, likedependent children or a spouse.

Protecting yourself when shopping for annuities

Purchase products only from licensed companies and agents. You can check out a company's credit rating through agencies like Moody's, A.M. Best and Standard & Poor's. Your company and agent should be licensed in your state.

NAIC warns consumers to look out for the following red flags:

• High-pressure sales pitches.
• Salespeople who urge you to sign up quickly.
• Agents who hesitate to show credentials.
• Offers that are "too good to be true."

Shop and doc: Health care goes retail

Instead of heading to the doctor’s office, many Americans choose to visit a medical clinic located in a pharmacy or a discount store when they need help with minor medical problems.

The use of retail medical clinics increased tenfold between 2007 and 2009, according to a RAND Corp. study. Using data from 13.3 million people with insurance (excluding those over 65), RAND researchers found that the rate of visits per 1,000 enrollees jumped from 0.6 in 2007 to 6.5 in 2009.

People who lived close by the retail clinic were more likely to visit it, and so were people with incomes above $59,000. Adults between ages 18 and 44 were more frequent users than older Americans, and women got treatment at the clinics more often than men.

But most of these patients were relatively healthy overall; people with chronic health problems (like asthma) tended to stick with their doctors’ offices when they were ill.

One reason for the popularity of medical clinics is their convenience; most have evening and weekend hours that make it easier for people who work regular weekday hours to get care. Parents like the fact that if their children get sick on a weekend, they don’t have to wait until Monday to see a doctor. Some clinics will even let consumers make appointments online to reduce their waiting time.

The retail clinics’ lower costs also may help explain their attraction. The RAND study found services in a clinic cost 30 percent to 40 percent less than those provided at a doctor’s office and a whopping 80 percent less than services at a hospital emergency room. The Convenient Care Association, which represents retail health clinics, claims the clinics also may reduce health care costs because when people use them to receive preventive care (such as a flu shot), they don’t get sick and don’t require more expensive treatment.

The services offered by retail medical clinics and the fees that they charge are usually posted in stores and on the clinics’ websites. CVS Pharmacy’s MinuteClinics, for example, will provide exams for minor illnesses, minor injuries, skin conditions and wellness. They also can give vaccinations, take samples for lab tests and monitor ongoing physical conditions like asthma, high blood pressure and diabetes. A camp physical for a child costs $59; an asthma screening, $59 to $69; and a quick strep test, $30. The tests have to be done as part of some type of exam, however.

Most insurance companies will pay for visits and services at retail clinics, but it’s always a good idea to check with your insurer before you go.

As of January 2012, more than 1,300 retail clinics were operating in 40 states, according to Merchant Medicine, which helps health groups set up retail locations. There may soon be many more. In November 2011, Walmart sent out confidential requests looking for partners to help it significantly expand its current network of in-store clinics. In addition, many established retail clinics now are reaching out to local hospital systems to form partnerships.