Annuity FYI Blog

The Allianz Life Insurance Company of North America has been selling annuities, life and long-term care insurance since its inception in 1896, according to company press release “Allianz Life Ratings Reaffirmed and Record Earnings Reported.”  Allianz Life is based in Minneapolis; their parent company is Allianz SE, a global financial services group.  Both their Moody’s and Standard & Poor’s ratings were reaffirmed this year.  Moody’s rates Allianz Life A2 (Good) and their S & P rating is AA (Very Strong).

The second quarter of 2009 was record setting for the company’s profits, which were up 77% from last year.  Their capital position also improved significantly with help from their parent company.  Allianz Life’s President and CEO is grateful to have such a strong parent company during difficult economic times.  They also believe that they have benefited from their conservative investment portfolio.  Using a 401k annuity to ensure guaranteed income for life is becoming more popular as people live longer.  Allianz Life has new variable annuity rider options that it will introduce next week to keep up with consumer demand for annuities.

Jim Miller of Human Events was asked in “Immediate Annuities: A Safe Way to Boost Your Retirement Income” what kind of annuity would provide a retiree in their 70′s with a safe income stream for life.  His answer was a fixed immediate annuity because it is a means to retirement that while being virtually free of risk gives you a guarantee of income for life.  After purchasing the annuity from an insurance company, the retiree will receive monthly checks either for the rest of their life (single-life annuity), the rest of a spouse’s life (joint-life annuity), or a specified time frame (fixed-period annuity).

Miller points out that after purchasing an annuity the money stays in the annuity, so he recommends using no more than 50% of a portfolio or 401k annuity for the purchase or the amount that will cover your living expenses.  Age, gender, original investment amount, interest rates, and any riders you add to your policy will determine the amount of your monthly payout.  There are many riders that can be added to an annuity which bring additional benefits at a small cost.  Protecting against inflation can be done either with an inflation-adjusted rider or laddering the purchase of annuities, basically purchasing a new annuity every few years to take advantage of being older and possible increases in the interest rate.  Although most state guaranty organizations protect annuities to an extent if an insurance company goes out of business, it is best to research the ratings and choose the best insurance company for your retirement plans.

In “How to Walk Through Fire,” Kerry Pechter of Retirement Income Journal highlights three financial advisors working in a traditionally unconventional way to secure their clients’ retirement future.  All three advisors are in the western United States.  They have built retirement floor income to protect their clients from a tumultuous market, allowing these clients to avoid the worry plaguing many in this volatile economy.  Phil Lubinski of Denver uses what is known as a “bucket approach” to secure guaranteed money for the first years of retirement.  He uses six of these buckets, each of which grows in risk as the time they will use the money is farther away.  For example, a 401k annuity (transferring your 401k to an annuity) would be the least risky and could fill the first bucket of retirement.  His philosophy is that guaranteed income is the most important for the first five years of retirement.  The sixth bucket would start with the least amount of money and the highest risk profile since there is a large time frame to hopefully grow the balance.

In Kansas, Dean Barber uses a similar philosophy with the clients that he labels “the millionaire next door.”  His first priority is protecting their assets; growing the money is second fiddle.  Barber specializes in clients who are very near retirement or have already retired and finds that this approach works best to keep them financially secure in retirement.  All of his clients defer their Social Security payments until age 70 and use other retirement funds, such as annuities, to fill the space between retirement and receipt of Social Security.  Larry Frank of California uses his extensive research to change the risk level of clients’ portfolios before any negative market effects can occur.  Clients over the age of 55 have significantly less risk not only because they are closer to retirement, but because they have a higher risk of job loss or medical problems.  In all three examples, being covered by the guaranteed income and low risk of annuities included in your portfolio helps secure a worry-free retirement in a volatile climate.

According to Jason Zweig of the Wall Street Journal, most of this financial crisis can be attributed to the decision making of men.  Zweig’s article “For Mother’s Day, Give Her Reins to the Portfolio” suggests that the innate tendencies of men cause them to incur more risk, avoid asking for advice, and reek of overconfidence.  Women, on the other hand, tend to look to safety before all else.  They are less likely to be overconfident, seek information instead of assuming that they know it all, and attribute success to outside factors rather than themselves.  Zweig suggests that more of the female perspective in the marketplace might bring some stability to the male dominated booms and busts that have occurred for hundreds of years.

Taking a female perspective into account with your 401k annuity and other retirement plans just may help you to get a better outcome once retirement rolls around.  The more risk averse, fearful, and cautious tendencies of most women usually lead to portfolios containing more diversity and less risk.  Instead of jumping out of the market and making rash decisions when the going got tough, women tended to research and do their homework before making a move.  For this reason, a lot of them left their money where it was and saw a 35% rise in stocks from March to May.  Over time, men and women working together to invest and make decisions will most likely lead to greater wealth for all.

Everyone seems to have difficulty determining the amount of money to withdraw from savings for their retirement.  It’s easy to make a mistake and take out too little or too much.  Since annuities pay you guaranteed income for your entire life with an up-front payment, they are a great solution to that worry.  One new way for consumers to purchase an annuity is by choosing a 401k annuity option, according to Sandra Block’s article “Your Money: Some companies offer 401k annuity option, ” in USA Today.  Block says that while the majority of companies do not yet offer this annuity option, many clients are showing interest in them and she expects more companies to jump on board as they upgrade 401k options.

Basically, a consumer invests part of their normal 401k contributions into an annuity which will provide guaranteed lifetime income, along with maintaining other investments.  There are options to purchase either a fixed annuity or a variable annuity in your plan.  The two main advantages listed by Block are a lower cost and a lower interest-rate risk.  Since companies get institutional rates when they purchase annuities, you are likely to get a lower cost plan than you would be able to individually.  Traditional annuity payouts are based on the interest rate when you purchase the annuity; but with a 401k annuity option the average interest rate for the entire time you invested is used in determining your payout.  The main drawback of potential problems transferring funds to another company looks to be corrected in future.  While this choice may not work for everyone, speak with an expert to see if a 401k annuity option will work for your future.