An insurance product that makes periodic payments to the annuitant until his or her death, at which point the payments stop completely. These products do not allow annuitants to designate a beneficiary. Straight life annuities may be bought over the course of the annuitant's working life by making periodic payments into the annuity, or they may be purchased with a single lump sum payment. Usually, lump sum purchases are made at, or shortly after, the annuitant's retirement. Watch: What is An Annuity Because these products make no payments to beneficiaries and no further payments after the annuitant's death, they are less expensive than other life insurance products that do pay out to beneficiaries. The catch is that people who buy these types of annuities with their life savings do not have the option of continuing to support their dependents once they have died.
A mutual fund that focuses on the distribution of income and capital gains to fund holders. These funds are becoming more popular as our population ages because they are aimed at income replacement, something that is crucial as traditional employer-sponsored pension plans disappear.Also known as "Open-End Managed-Payout Funds." Different features are offered depending on the structure of the fund. Some funds specify a specific monthly payout, while for others the payment is variable and based on portfolio performance. Some funds will deplete the investors principle, while others will maintain it.No matter the structure of the fund, it is very important to note that the payments and principle depletion or retention is not contracted - unlike annuities. Although the fund may plan to have a specific inflation-adjusted payout and principle retention strategy, if portfolio performance does not allow for it, there is no obligation by the fund managers to adhere.
A benefit plan that is similar to a defined benefit plan since contributions are based on projected retirement benefits. However, unlike a defined benefit plan, the benefits provided to participants at retirement are based on the performance of the investments, and are therefore not guaranteed. The target benefit plan also bears some similarity to a money purchase plan as contributions are mandatory. Generally speaking, a target benefit plan is a cross between a money purchase pension plan and a defined benefit plan.
A method of withdrawing funds from an annuity account by which the annuitant withdraws funds from the account in specified amounts for a specified payment frequency. The annuitant is not guaranteed lifelong payments as he or she is with the standard annuitization method. With the systematic withdrawal schedule, the annuitant chooses instead to withdraw funds from his or her account until it is emptied, bearing the risk that the funds become depleted before he or she dies. This method of fund withdrawal from an annuity, by not guaranteeing a lifelong income stream for the annuitant, places the risk of a longer-than-expected lifespan on the shoulders of the annuitant instead of on the insurance company offering the annuity. An annuitant choosing this withdrawal method instead of the annuitization method would not be limited to a small amount of funds every month, and could in fact remove his or her funds from the account relatively quickly, should he or she desire to do so.
A charge levied against an investor for the early withdrawal of funds from an insurance or annuity contract, or for the cancellation of the agreement. Surrender fees act as an economic incentive for investors to maintain their contract, and they allow the insurance company to have reasonable expectations for the frequency of early withdrawals.Also referred to as a "surrender charge". Surrender fees vary among insurance companies and among annuity and insurance contracts, but a typical annuity surrender fee could be set as a 10% (of the funds contributed to the contract) charge levied for withdrawal in the first year. For each successive year of the contract, the surrender fee could drop by 1%, for example, effectively giving the annuitant the option of no-penalty withdrawal after 10 years in the contract.
A non-qualified retirement plan for key company employees, such as executives, that provides benefits above and beyond those covered in other retirement plans such as IRA, 401(k) or NQDC plans. There are many different kinds of SERPs available to companies wishing to ensure their key employees are able to maintain their current standards of living in retirement. SERPs are also known as "top hat plans". Unlike NQDC plans, in which key employees defer compensation in order to receive it later, SERPs are entirely funded by the employer. Because of the high costs associated with funding SERPS, they are criticized by shareholder advocates and labor groups that believe some executives are overpaid for their performance.
The pension fund for Japanese public sector employees. The GPIF pension fund is the largest in the world, with approximately $1.3 trillion (122 trillion yen) in assets under management as of 2009. The GPIF contributes to the stability of the Employee's Pension Insurance and National Pension programs. The GPIF invests in a mix of domestic and international stocks and bonds, as well as FILP bonds. A large amount of the GPIF’s assets are invested with external money managers, who are selected and monitored by GPIF managers. only a small portion of the assets in the domestic bond category are invested by in-house investment managers. The majority of the GPIF's assets are allocated to passive investment funds that seek to mirror the returns of a market index within each asset class.
A trust created as a result of explicit instructions from a deceased's will. Typically, the remaining estate of the deceased (trustor) will act as the body of the trust, and the executor will manage it until the beneficiaries are capable of doing so individually.
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