Annuity FYI Blog

In the Raleigh Personal Finance Examiner, Robert Stack wrote that “Annuities are a useful tool.”  He points out that clients are often wary of annuities because of common misconceptions, but that they are important for many reasons.  Annuities are one of the most secure ways to receive money because they are guaranteed for life.  Lottery winnings, social security payments, and contracts with life insurance companies are all annuities.  Annuities are very important to consider when putting together your “Financial Plan.”  Stack notes that while annuities may not be the best vehicle for everyone, they should always be considered.

Variable annuities seek to guarantee your money while potentially growing it in the market.  Fixed annuities have less risk associated which makes some investors happy.  Stack worries that many people don’t consider annuities because their advisors are not clear on all the details or how important they can be to a retirement plan.  He points out that last year when many people’s investments were decimated by the market, he didn’t lose any money in his annuities.  That seems to be a convincing argument to at least compare annuities and see if they are right for you.

In “How Annuity Withdrawals are Taxed” by Kimberly Lankford of Kiplinger’s Personal Finance, Lankford explains the ins and outs of taxes on annuities.  There are 3 things that need considering when determining the taxes for annuities: whether it is an immediate or deferred annuity, with what money the annuity was purchased and in what way you will receive the payouts.

Immediate annuities take a lump sum payment from you to an insurance company and release monthly payouts to you for the remainder of your life.  When using either an IRA or 401(k) that has yet to be taxed, your payouts will be subject to your normal income tax rate.  If you have purchased the annuity with after-tax money, then you will only be taxed on any payouts above and beyond your initial investment.  Immediate annuities in which you receive payments for life use the IRS’s life expectancy for people your age to determine your payment period.  They use that number to figure out how much of your investment is a tax-free return and how much is subject to taxes.

With deferred annuities, you put money either in a lump sum or over time with the plan to receive monthly payouts at a fixed time in the future.  Whether your annuity is variable or fixed, it grows tax-deferred until you begin getting your payments.  You can usually make transfers between funds in a variable annuity or even between different deferred annuity options without being taxed.  Once you begin your withdrawals the taxes are like with immediate annuities, based on whether you used pre-tax or after-tax dollars to purchase the deferred annuity.  If you withdraw all of the money at once you will be taxed on any gains above your original investment.  With smaller withdrawals over time, all gains come out first and are taxed accordingly until you get to the original investment amount.  You can also annuitize the deferred annuity, which would allow you to take payment over your lifetime like with an immediate annuity.  That option would follow the same tax rules as the latter.

ING Life Insurance and Annuity Company introduced roundtable discussions for their mid market consultants and advisors, according to a company press release via PR Newswire.  They consider the mid market employers to be those with retirement plan assets between $20 million and $150 million.  These roundtable talks held by ING’s U.S. Retirement Services branch are meant to educate and build relationships within their mid market arena.

The first meeting for the consultants and regional investment advisors (RIA’s) was held June 9 in Washington D.C. with more to come in the upcoming months.  ING seeks to remain an industry leader by discussing topics such as overseeing investments, keeping up on trends within the industry, and the possibility for these mid market advisors to grow into larger plans.

A large summit is also being held on the 9th and 10th of September for even more industry partners.  ING’s new Framewor(k) product seeks to make the relationship between their clients and partners simpler.  They realize the unique needs of their mid market sponsors and seek to offer products meeting those needs, such as their Framewor(k) product.

Insurance regulators in the state of New York are holding four hearings to determine if they need to add more regulations for life insurance and annuity contract sales, as written by Jonathan D. Epstein of the Buffalo News.  The article, “Insurance Department mulls more oversight”, says that the hearings will start in Buffalo on August 6 and follow in Albany, Long Island and New York City through the middle of September.  The issue of “suitablity”, or the proper match of product and consumer, is the insurance regulators’ main focus.  They want to make sure that companies are not improperly selling life insurance and/or annuities to people that the products do not suit.

The New York State Insurance Department seeks individuals and organizations alike to come to these hearings and voice comments or concerns.  Whether in the field of academics, aiding senior citizens, or average Joe citizen, they want to collect information from you.  They are also accepting comments by mail, email and the state’s website.

NAIC, the National Association of Insurance Commissioners, has what they call their “model regulation”.  Although 30 states follow this model, New York is not one of them.  Currently there is no law in New York that bans selling life insurance or annuity contracts that are not in the consumer’s best interest.  The insurance regulators will decide after these hearings whether the state will adopt the NAIC guidelines or the Financial Industry Regulatory Authority rules governing variable annuities.  Another pending decision is whether or not the new policies will be a blanket rule for all life insurance and annuity sales.  There’s a lot of discussion to be had.

According to Investment Weekly News, the Monument Advisor variable annuity from Jefferson National has the most Five-Star Morningstar Rating subaccounts.  Their flat-insurance fee variable annuities offer over 175 tax-deferred investment options with 50 of those having a Five-Star Morningstar Rating.  Jefferson’s closest competitors are Schwab’s One Source with 28 Five-Star ratings, Best Of America Advisor from Nationwide with 22, and Ameritas with 13 of the highest rated subaccounts.  On average, variable annuities only offer 4 of the Five-Star subaccounts so these companies offerings are significant.

Jefferson National’s President and CEO, Laurence Greenberg, is proud of his company’s products, especially since they are so hard to find currently in the variable annuity industry.  In addition to their Five-Star Rating subaccounts, Jefferson also has 46 Four-Star Morningstar Rating subaccounts.  Greenberg stressed the importance of Monument Advisor’s quality and range of options, especially in difficult market conditions.  It also carries one of the lowest costs in the industry.  An expert can determine if one of these variable annuities is the best annuity for you.