Annuity FYI Visitor Blog

Wall Street Journal reporters Leslie Scism and Liam Pleven recently highlighted the modifications made by insurers to variable annuity benefits. These annuities have been very popular with baby boomers looking for a safer retirement plan with tax benefits and a minimum return. However, the current slump in the economy has made many insurers unable to meet investment guarantees. It has increased the cost of hedging to fight the downside of these annuities; in the year it ending October 31, the cost of hedging has been said to increase by 80%, making the sale of the riskiest variable annuities less financially viable.

Scism and Pleven report on the trend of insurers either increasing the prices of their annuities or decreasing their benefits. For example, AXA Equitable Life Insurance Company recently discontinued their 6.5% guaranteed minimum income benefit plan, and increased the fee of their 6% annuity by 0.15%. Insurance companies may phase out selling their most costly annuities, and industry analysts also predict the advent of new products that will allow insurers to raise fees in the future. There is also the possibility that insurers may end up consolidating.

The incoming Obama administration will likely increase taxes on individuals in higher tax brackets.  Gail Liberman from the Palm Beach Daily News suggests that annuities are a very good option for these investors in the current economic climate. Tax-deferred fixed annuities and variable annuities are options that will keep your money safe and sound. Variable annuities often include principal guarantees and allow you to invest in stocks and bonds. However, their annual charges may be high.

You’ll have to pay regular income tax on withdrawn annuity income. Also, early withdrawal of your funds may result in you having to pay back-end surrender charges.

Liberman advises that when choosing any type of annuity, make sure that the insurer has at least an AAA rating by Standard & Poor’s, as well as an A+ by A.M. Best.  This will help you select the best annuity for your needs.

Nationwide has raised their 10-year fixed annuity rate to a historic 7%. Currently, this rate is 3.62% higher than the 10-year Treasury rate.

Review our fixed annuities comparison page for more information.

MassMutual has announced that it will be suspending sales of its Guaranteed Income Plus 6 rider on December 2, 2008.

Features include…

-Guaranteed 6% annual compounding rate

-Immediate withdrawals

-Annual re-set

Visit our GMIB page to learn more about the Guaranteed Income Plus 6.

Brett Arends of The Wallstreet Journal Online recently addressed concerns of AIG policyholders.

Brett explains that there are three separate barriers protecting your retirement annuity, long term care, or other type of insurance policy.

-AIG on Wall Street is an umbrella company, while the policy is actually held by a subsidiary in your state.  The policy is backed by assets and insulated from the parent company’s woes.

-If the state level subsidiary did get into financial difficulty, the state insurance commisioner would jump in and take control of the company.  In the event this was occur, Brett states the policyholders would get their money back before any other creditor would be paid.

-If these steps didn’t completely cover you, state guaranty funds should.

In summary, policyholders have regulations protecting them.  To read an excerpt and request the full article, please click here.