Annuity FYI Blog

In a Wall Street Journal article, Shelly Banjo and Kristen McNamara highlighted the advantages of fixed immediate annuities. Like standard fixed annuities, they are generally safe investments for retirees. Unlike them, these products begin making payments soon after you deposit a lump sum and provide an income stream with little delay.

The top immediate annuity rates in the market are around 4.75% to 5.40%, which seems to be a decent return when compared to a 10-year Treasury note or 5-year CD (each of which have interest rates of under 3%)

However, McNamara and Banjo warn that as soon as immediate annuity holders start to recieve payments, they owe taxes on the earned interest. 

An article in the Retirement Income Reporter states that this May, Hartford Financial is planning to launch a new variable annuity product with a guaranteed lifetime benefit. While a lifetime benefit can be quite appealing to individuals nearing retirement, there is a catch in this offering.

Hartford has also announced that in order to keep costs low enough to appeal to consumers, this annuity will have some “constrained features”; said constraints are unknown at this point. These limits will also protect the firm from some of the risk associated with variable annuities.

It’s still early, but their new product may be something to look into when it’s released.

Pacific Life and GEAM are collaborating on a variable annuity product for the first time. As of February 1st, Pacific Life has begun to offer the GE Investments Total Return Fund in its variable annuity platform, according to a press release. The fund from GE Asset Management Inc. is intended for investors who are looking for a long term, transparent product that seeks the highest total return with prudent investment risks. Such a product seems to fit the needs of baby boomers close to retirement. It plans to achieve that goal by using both current capital and its appreciation.

The Insurance and Financial Advisor’s Bob Graham has reported on the recent results of the Michael White-Symetra Bank Holding Company Fee Income Report. The findings apply to the first three quarters of 2008, and the top 10 bank holding companies (in terms of annuity and mutual fund income) for that time period are as follows:

1. Wachovia (since bought by Wells Fargo)
2. JPMorgan
3. Chase
4. Bank of America
5. Citigroup
6. Wells Fargo
7. Bank of New York Mellon
8. Taunus
9. National City
10. SunTrust Banks

Income from annuity fees rose 32.7% in the January-September 2008 period, compared to the previous year. Find out more about variable annuity fees.

In the Wall Street Journal, Leslie Scism reported on what steps insurers are taking to lessen the risk of covering variable annuities with income guarantees. People preparing for their retirement are thankful that they will not lose their principal, but are worried that insurance companies will struggle to cover their guaranteed minimum income benefits in this market.

However, Scism says that annuity providers use a complex hedging process in order to reduce their market risk. In order to offset stock market declines, they buy financial derivatives that are expected to rise when the market falls. Hedges are time-consuming and need to be updated several times during the life of an average long-term variable annuity.

They aren’t infallible; the success of hedging depends on an insurer’s experience and skill. Hedging is becoming more expensive, due to the Fed lowering interest rates and stock fluctuations.