Annuity FYI Blog

From Online PR News, Rafael Onak’s article “Find Solidity in a High Interest Annuity” urges investors to take advantage of the opportunity before it passes by.  High interest annuities offer a guaranteed rate of return while the rest of the equity market is still pretty volatile.  They are available as variable annuities, fixed annuities, or equity-indexed annuities.  Variable and fixed are the most common types of high interest annuities.  You can get a 10 to 14 percent rate of return with variable annuities but the product is the riskier investment.  Fixed annuity rates are guaranteed, but the investor loses the ability to directly manage their account.

High interest annuities grow at a faster rate than other investment products.  They also offer guaranteed income over your lifetime and withdrawal benefits.  Making a 401k annuity transfer to purchase a high interest annuity can give you tremendous tax savings as well.  Annuities grow tax-free until an investor begins receiving payments, unlike CD’s that are taxed yearly.  As with all retirement products, investors should shop around for the best annuities to add to their portfolio and speak with an expert.

In “Insurers Retool Annuity Offerings” by Leslie Scism of the Wall Street Journal, Scism describes how insurance companies are making changes to the variable annuities they offer to lower their risk while maintaining the products’ appeal to consumers.  The guarantees previously offered are the issue worrying many insurance companies.  While sales of variable annuities helped dozens of insurers grow exponentially over the past decade, the drop in the stock market brought the risk of these guarantees to the forefront.  Insurance companies have prepared their balance sheets for the impending lifetime income guarantees that will become payable based on the stock market’s high in 2007.  Two companies had to do this by taking federal bailout money.

But variable annuities are becoming popular again as their sales increased last quarter for the first time in over a year.  The new products are simpler but still offer most of the great benefits variable annuities are known to have.  Hartford has what they call a “derisked” VA offering and MetLife is coming out with their “Simple Solutions” product.  Although the products may have a higher cost to benefit ratio than variable annuities of the past, consumers are still receiving great annuity rates and benefits.  Consumers want to buy their annuities from companies that will stand the test of time and these changes are what will keep the insurance companies around.  Manulife’s John Hancock unit offers “AnnuityNote”, which has been on sale for a few months and is doing well while offering relatively low costs compared to their 5% and above lifetime annual payouts.  As advisers and consumers realize that these changes will benefit them with lifetime guaranteed income from an insurance company that will be around for their lifetime, variable annuities are sure to be purchased even more.

In “Advice: Protecting your money” from the Cape Fear Business News, James D. Gidley gives wary investors an alternative to using their mattress as a bank.  It is obvious why people are scared of the stock market right now.  If you are looking for extra security for your savings, Gidley suggests fixed annuities, money market accounts, and certificates of deposit.  Each alternative has its own benefits and pitfalls so speaking to an expert is the best way to find the one that works for you.

Fixed annuities protect your principal from losses and pay you a set amount in interest income over either your lifetime or a predetermined time frame.  By searching for the best fixed annuity rates, you have the ability to grow your initial investment.  Annuities are not meant to be cashed in so they are long term investments.  The taxes are deferred until you receive your monthly payouts, usually in retirement.  Unlike money market accounts and certificates of deposit, fixed annuities are not guaranteed by the FDIC so it is wise to use financial strength ratings reports to find a strong insurance company.

If we knew exactly how long we were going to live, it wouldn’t be difficult to know how much money we need available in retirement.  Unfortunately life expectancy tables and guesses are the best we can do when trying to determine how long we’ll be around.  Online source theadvertiser posted an article by Georgianna “Shelly” G. Latino entitled “Life length, retirement are connected” with information on retiring effectively.  According to recent studies, children that were born in 2002 are expected to live well into their 70′s, 74.5 for males and 79.9 for females.  Life expectancy numbers increase often because of medical advances and trends in lifestyles and the longer you live, the longer you are expected to live.

So the question lies in how to finance the long future that many of us will enjoy.  Retirement income needs to last for several decades in order to avoid the longevity risk of outliving one’s money.  Immediate annuities are the solution listed in Latino’s article.  By purchasing an immediate lifetime annuity using a one time lump sum payment, a guaranteed income stream will be paid to the investor over the course of their lifetime without being subjected to market risk.  Numerous “riders” are available that can provide you with even more benefits.  To protect against inflation, you can add the option of having an annual increase.  There is also a cash refund option where any remaining principal you did not receive in monthly payments will be refunded to your heirs, were you to die before expected.  An immediate annuity can secure your retirement future.

The National Association of Insurance Commissioners just had a fall meeting to discuss the changing regulation needs regarding annuities, according to “Taking on the next steps in annuity regulation” by Brian Atchison of Investment News.  Consistency across the U.S. seems to be the biggest problem relating to annuity regulation.  State and federal regulators are in charge of overseeing variable annuity sales transactions, but they have differences in their policies.  Fixed and indexed annuities are only regulated by state agencies who follow the guidelines of the NAIC.  This is all changing with new regulations.

The NAIC’s Suitability in Annuity Transactions Model Regulation has been adopted by 41 states.  It basically says that any annuity being sold has be suitable to the purchasers’ needs and will be subject to regulators if it is not.  Unfortunately all states have not adopted the regulations and those that have are interpreting the rule in their own ways, so nothing is standard across the U.S.  The Insurance Marketplace Standards Association and Finra have proposed that the NAIC give more guidance, direction and greater enforcement to the 41 states following their guidelines.  With that proposal, the NAIC has decided not to change their current guidelines, but to focus on meshing them with Finra Rule 2821.  As IMSA, the NAIC, and Finra are able to work together to regulate annuities, it can only help consumers’ interests.