Annuity FYI Visitor Blog

“Build a better 401(k)” by Eileen Ambrose of The Baltimore Sun talks about some ideas for making Americans’ retirement last throughout their lifetime.  At the same time as more Americans are living to the age of 100 and beyond, we are in a time where fewer people are saving for a retirement that could be much longer than our years working.  With more people approaching retirement putting Social Security safety into question and the lifetime income of traditional pensions a thing of the past, the 401k annuity has been getting a lot of attention from people like President Obama.  Because annuities provide a lifetime stream of income in exchange for a lump sum payment to insurance companies, the idea of combining them with 401k’s housing your retirement money makes sense.

While annuities have a lot of options to research, using some of a 401k to purchase one for guaranteed lifetime income is right for many people.  Retirees are handed their 401k in a lump sum at retirement to live off for the rest of their lives.  They can use some of the money to purchase immediate annuities at retirement, but aren’t always educated about the product.  President Obama’s council has two ideas for matching 401k’s and annuities.  At age 45, 401k plans can start putting retiree’s money into an annuity or they can purchase an annuity at retirement with half of their 401k savings.  The stability of the insurance company from which annuities are purchased is crucial, so there is a call for a federal insurance fund similar to the FDIC to back up these annuities in case the insurance company goes out of business.  The government is still doing research to determine what their recommendations will be.

The United States Securities and Exchange Commission has an informational page dedicated to equity linked CDs.  They are certificates of deposit that tie your rate of return to a stock index’s performance.  With FDIC insurance, equity linked CDs have an extra safeguard that other investment products do not.  The terms vary with different banks, but these CDs usually have a term of around five years.  When you compare equity linked CDs with other products, banks like to highlight the principal protection that they offer.  If there is a downturn in the market, the original principal will not be affected.

There are things to consider when looking into an equity linked CD.  They do not have liquidity before the term expires so they should not be used if you might need your money sooner than the five years or so.  Market risk and call risk are associated with equity linked CDs.  FDIC insurance covers the amount permitted by law, but always read all of the terms associated with the FDIC.  Many returns are calculated by averaging the index’s closing price over a period of time instead of upon the maturity of your CD.  Look into the equity linked CD criteria to find out the participation rate and whether or not there are caps associated with your product.  Since equity linked CDs can have different tax benefits than regular CDs, make sure you know those before purchasing.

In the Wall Street Journal, Brett Arends explains “How to Salvage Your Retirement.”  While there are people that have little to nothing saved and won’t be able to retire when they’d like, many people have employer sponsored pensions or home equity that will help them in retirement.  It’s not always enough though and a lot of Americans don’t have either of those options available.  According to a recent study, forty percent of workers are not saving for retirement.  Arends’ top tips follow.

• Work as long as you possibly can.  This gives you more time to save, allows the savings you already have or are now saving to grow, and lowers the number of years that you will need to use those savings to live.  Delaying Social Security payments is also wise because you will receive more each year.
• Lower your costs of living in retirement.  One of the best ways to do this is to live where the cost of living is low in the United States.  Moving somewhere in the central U.S. tends to have the lowest housing and living expenses.  Even moving a little farther outside of a big city makes a difference.
• Make a plan for yourself that isn’t concerned with leaving money to your heirs.  Immediate annuities and reverse mortgages help you to get more out of the same retirement money.  There are sacrifices to be made for both, so make sure the options are right for you.
• It can’t be said enough: spend less and save more.  While it seems like a simple idea, many people just are not following the concept.  Starting now, wherever you are in the retirement spectrum, will always make a difference and help your future money grow.

Use tax breaks for people over fifty to your benefit and save for 401k annuities and IRAs.  You are able to put more money into these accounts than those younger than fifty.  Take advantage of what the government has to offer.  Work longer, lower living costs, think about your own future, and save.

Jackson National Life Insurance Company had record sales and net income in 2009, according to Business Wire press release “Jackson(R) Announces Record Sales and Record Profit in 2009.”  With sales and deposits of $15.2 billion, Jackson saw an 8% increase from 2008.  Their net income of $670 million was a complete turnaround from a $1 billion loss in 2008.  Although the financial market was still a challenging one, Jackson recorded their highest sales and net income in the history of the company.  Variable annuities accounted for $10 billion of their 2009 sales, an increase of $3.5 billion from the previous year.  Jackson’s fixed index annuities sold $2.2 billion, which was an increase of more than 100% from 2008.  While traditional deferred fixed annuity sales decreased from 2008, they still accounted for $1.6 billion in sales.

Ratings from all four financial strength rating companies have remained strong over the past seven years.  A.M. Best rates Jackson an A+(superior), Standard & Poor’s and Fitch Ratings both rate them an AA(very strong), and Moody’s Investor Services Inc. gives Jackson an A1(good) rating.  These strong ratings are earned in part by Jackson’s top annuity sales rankings in 2009.  They had 5.9% of the market share in total annuity sales which put them in 4th place.  They were also 4th in new sales of variable annuities, giving them a market share of 8.1%.  A market share of 7.5% in sales of fixed index annuities gave Jackson their third 4th place ranking.  While they dropped in ranking for fixed annuity sales from 2008, it was a planned move to preserve the company’s capital.

In the Investment News article “Eight big changes that will reshape the annuity biz,” Darla Mercado summarizes a report from Jack Marrion of Advantage Compendium Ltd.  Fixed annuities will see their largest sales ever in the next ten years because of the 58 million Americans nearing retirement will be more receptive to the product’s value.  The 1st change we’ll see in the next ten years is a drop off in 1035 exchanges as it becomes more difficult to transfer from one annuity to another.  With the likely passage of Rule 151A classifying annuities as securities, marketing organizations (MOs) will phase out of existence.  The 3rd change will be a takeover by securities regulators ensuring suitability of annuity products.  The MOs that remain will have to have securities connections with broker-dealers or RIAs to stay competitive.

The 5th change that Marrion believes will happen when you compare annuities today and in ten years is that they will be seen much more in pensions as the planners get comfortable with the products.  Next, the way that guaranteed benefits are offered now will be overhauled with new options that are better for investors.  The 7th change is that Wall Street could be a large part of the annuity industry by getting involved through the teaming of investment firms and life insurers.  The final change will likely be a skyrocketing of fixed annuities sales in the next ten years.  As the products and their benefits evolve, Marrion believes that future retirees will be very open to fixed annuities.