The New Annuity

With company pensions almost gone, a once-dubious insurance product could be your personal pension.

Chances were good that your parents collected a pension upon retirement. But since the 1980s, most large companies have discontinued the "pension for life" retirement plans. Now, unless you're a civil worker, the burden of saving for your golden years has been completely shifted to your shoulders. And the price tag is onerous: You'll need to save more than $1 million to provide the retirement income equivalent to an average teacher's pension.

With investment markets moving backward, it may seem impossible to ever retire. However, now you can design your own pension with a new generation of variable annuities. The old annuity was rightly criticized as too expensive and illiquid. While those older, unattractive products are still available, the new products are very different and can help you grow your retirement account no matter how ugly the stock market gets. While the fees are still higher than the average portfolio of mutual funds, the new annuities offer a fixed minimum rate of growth (while you're accumulating money for your retirement) or withdrawal (during retirement). Those minimum rates are typically 5% to 7% (depending on the product), even if the market declines. Then, when the markets perform above the guaranteed rate, the investor can enjoy the upside and benefit from higher growth rates.

This type of annuity, called a "variable annuity with guaranteed benefit riders," is not a do-it-yourself product. You will need a financial professional to determine if this type of product is a good fit for your retirement needs.

Save Me Unless moving back home with your parents is a viable option, you should have a Plan B to cope with a financial emergency. A credit card may help you pay for a one-time car repair or a veterinarian bill, but plastic isn't going to get you through a period of unemployment. A pot of available money for emergency savings is an old-fashioned concept that makes a lot of sense in today's uncertain world. Ideally, you should have anywhere from $2,000 to six months of living expenses set aside in a cash account, earmarked for a crisis. While spending that money on a tropical vacation may relieve your stress, the peace of mind of an emergency savings account will last much longer.

Make It Interesting Since typical savings account interest rates are pitifully low (not much better than keeping money in your mattress), it makes good sense to look beyond your local bank for the best rates. Bankrate.com is an excellent resource for finding up-to-date information on interest rates for savings accounts, money markets, and CDs (certificates of deposit) nationwide. Incidentally, if you were considering the bedsprings saving plan, you should know the pitfalls: You won't be able to keep up with inflation because your money won't be earning interest, and worse yet, you have no recourse if your cash is stolen.