Annuity FYI Visitor Blog

Chariman and CEO of FINRA, Richard Ketchum, puts the fiduciary responsibility of gaining back investors’ confidence in the hands of broker/dealers.  According to Kathleen M. McBride’s article “FINRA’s Ketchum Speaks of Fiduciary Duty” from Wealth Manager Web, this was Ketchum’s message to the Securities Industry and Financial Markets Association.  There is a distrust of the entire financial system after the past couple years of economic difficulties.  Ketchum put out a challenge for broker/dealers to gain back the confidence of investors in the system as a whole.

While possible overselling of variable annuities and life settlements was scrutinized, the importance of following regulations and selling the right product to the investors carries through for a fixed annuity or any other investment product.  The two most used and possibly most important words in Ketchum’s speech were “shift” and “fiduciary”.  He called upon broker/dealers to shift both the way that they develop new products and how they market those products to the public.  Ketchum also urged them to have strong “integrity and commitment to good business practices” and called for a “true fiduciary spirit”.  Basically, he hopes that broker/dealers will gain the trust and confidence of investors by matching products suitable to their needs.

According to Business Wire press release “For Consumers Nearing Retirement: New Allianz Life Annuity Can Generate Income After Just 5 Years”, Allianz Life Insurance Company of North America is adding to the fixed annuities market with its Endurance Elite product.  Endurance Elite is geared towards investors that are nearing their retirement because the benefits can be as little as 5 years out.  The Census Bureau predicts that almost 30% of the population in 2020 will be over the age of 55 so the timing is right for such a product.

The senior vice president of sales for Allianz Life, Eric J. Thomes, says that the product was developed purely because customers were asking for it.  Protecting their retirement savings into the future is at the forefront of most cautious consumers’ minds.  Endurance Elite offers protection for the principal amount purchased, the possibility of accumulation, and retirement income that is available in as little as 5 years with the potential for growth.  It is already for sale in 40 states.  The income benefit value that is built-in does not add cost and even has a 10% premium bonus.  You will also receive lifetime retirement income based on the income benefit value and the potential for yearly increases.  Rolling over 401k annuities to purchase this new fixed index annuity from Allianz Life may benefit your retirement savings account.

In order to attract more advisers, New York Life Insurance Co. is changing their immediate annuities by introducing a no-load version.  This information comes from Investment News‘ “Take a load off: New York Life set to tweak immediate annuities to draw advisers” by Jessica Toonkel Marquez.  This no-load immediate annuity is geared towards fee-based advisers because it is believed that this product will be more widely accepted.

New York Life’s Vice President Matthew Grove stressed the company’s strong belief in annuities that offer lifetime income while he was at Money Management International’s fall conference.  He also said that the no-load immediate annuity should be available early next year.  Currently New York Life only offers immediate annuities in a load-version.  They plan to make this no-load version easily understandable for advisers so that they are willing to and excited about selling the best annuities to their clients.

The Retirement Income Journal’s article “Unsolved Mystery” by Kerry Pechter reveals interesting findings regarding financial advisors and annuities.  Consultant and researcher Matt Greenwald ran a two part experiment.  The first part of the study involved Greenwald interviewing 11 academic economists.  He asked them if they thought that typical retirees should invest in annuities.  Every one of the economists said that annuities were an important retirement vehicle and that they would recommend them, although they all had different opinions regarding the circumstances for individual investors.  Since the academic economists believe that annuities are a beneficial retirement product, Greenwald conducted the second part of his experiment to see why there aren’t more widely purchased.

He sent 8 mystery shoppers near-retirement to financial advisors seeking advice regarding the best use of their money for retirement.  Each of the mystery shoppers had between $600,000 and $3 million in assets and went to reputable advisors at large financial firms such as Morgan Stanley and Wachovia.  Interestingly, none of the advisors recommended annuities to their potential clients.  All of them recommended similar plans investing in stock or bond mutual funds and drawing down a percentage of their account throughout retirement.

Greenwald’s experiment poses the question:  why aren’t advisors recommending annuities to their clients when academic economists believe across the board that they are important retirement products?  A study of approximately 1/4 of the registered active advisors was conducted this year by Brightwork Partners LLC and confirms what Greenwald’s study showed.  Only half of the advisors recommended period-certain income annuities to their clients.  They seem to believe that annuities are an expensive solution to the issue of retirement although when compared with other products, they tend to net more monthly income over longer periods of time.  Both studies suggest that advisors may not be recommending annuities as frequently as they could because they are not compensated as well as with other products.  Be sure to ask your advisor if an annuity is right for you in case they don’t bring it up in your retirement planning.

In “Turning a lifetime of savings into income,” Walter Updegrave of Money Magazine gives advice on the best ways for you to make your retirement portfolio last as long as you live.  He stresses that there are pros and cons to whatever options you choose and that you really need to tailor make a plan for yourself because nothing will work across the board.  Each individual needs an individual plan.

It is wise to compare annuities when looking for guaranteed lifetime income.  A fixed-income lifetime immediate annuity not only makes it nearly impossible for you to run out of money, it also ensures that you know how much money you are going to receive on a monthly basis.  You can plan your expenses around your retirement income payments.  A $500,000 annuity purchased today by a 65-year old man would get him $3,200 a month over his lifetime, which is an 8% payout each year.  When purchasing an annuity, you always want to have a separate emergency fund so that you don’t have to incur any early withdrawal penalties.  Also, make sure to choose a highly rated insurance company that will be around to make your monthly payments.

An alternative theory to purchasing an annuity is to keep your investment money in stocks, bonds, and cash while withdrawing 4% annually to cover expenses.  Your payouts are initially much less than with immediate annuities and while in a good market, you will receive income for many years there is always the potential for a steep market drop.  It appears that meshing both retirement plans together might be the wisest option for many.  Purchasing an annuity that will pay out enough monthly to cover all of your basic living expenses guarantees that you will be covered over your lifetime.  You can leave the rest of your savings in a riskier portfolio and use that money as extra needs occur.  It usually makes sense not to put all of your eggs into one basket; retirement planning is no different.