Annuity FYI Blog

A week in Taiwan gave Retirement Income Journal’s Kerry Pechter some insight into the Taiwanese retirement system along with some sightseeing time.  In “The View from Taroko Gorge,” Pechter shares what he learned about their system as a whole and from an individual tour guide’s perspective.  His tour guide was a 51-year old woman who had a successful trading business and much wealth until a financially irresponsible husband and changing times took it all away, including her pension.  She moved back with her parents, evaluated her strengths and became a successful tour guide, and is now back on the road to financial stability.

By viewing Taiwan’s retirement financing, Pechter brought insight to our predicament in America.  They lost a lot in the 2008 economic decline as well.  He met with university professors, managers from the local Prudential and Fitch Ratings, and government officials.  Government and university employees are lucky to have a generous pension and some other workers in the public and private sector receive pensions through their jobs as well.  Taiwan also has a government pension similar to Social Security, but that only pays around 15% of your income into retirement and is running out of money.  A National Annuity Pension Plan to cover people who are self-employed or are not covered by other plans was established in 2008 and has an annuity payout option.

Prudential and 38 other firms saw the opportunity in this wealthy and open market to set up shop and manage some of the state funds and other Taiwanese retirement funds.  The management of funds is a very political business in Taiwan, subject to manipulation and infrequent or incomplete reporting.  The firms working in Taiwan hope to infiltrate the marketplace even further and find a way to make retirement planning less political and more about the people.

In Business Wire’s article “Putnam CEO Reynolds Calls for 2010 to Be the Year of Retirement Reform, with a ‘New Generation’ of Workplace Savings Plans,” Reynolds ideas for the future of retirement plans is highlighted.  Robert L. Reynolds is the President and CEO of Putnam Investments.  He hopes that following 2009′s year of healthcare reform, 2010 will be the year for retirement reform.  Annuities and other similar products that have lifetime guaranteed income should be incorporated into this “new generation” of retirement plans.

By 2020, Reynolds thinks that the market for annuities and other assured income products could reach $5.5 trillion.  The current estimate for variable and fixed annuity products by the Insured Retirement Institute is $1.7 trillion so this would be a significant increase over the next decade.  His proposed reforms call for insurance and mutual fund companies, sponsors of retirement plans, advisers, and the government to work together creating a new retirement marketplace.

In order to ensure that Reynolds’ idea of making assured income products like annuities a large part of retirement plans, he calls for some government reforms to help the process along.  A national insurance charter would consistently regulate all assured income products and a new regulatory agency tentatively named LISA (Lifetime Income Security Agency) would approve all assured income offerings.  A national insurance pool funded by the industry to secure annuity funds would be developed to mimic the FDIC bank protection.  Reynolds would also like it to be mandatory for workplace plans to offer annuities and other assured products and offer government tax incentives for plan participants to choose these offerings.  It’s a tall order, but could drastically change the face of retirement for the next generation.

The importance of rolling retirement plans into annuities is discussed in Kyle Fitzsimmons’ article “The Pension to Annuity Rollover: Solidifying Futures,” published via Official Wire. Whether you have a pension or a 401k at your place of employment, this tough economy is causing employers to drop pensions and stop contributing to employees’ 401k plans left and right.  Making a pension or 401k annuity rollover with a reputable insurance company can be a way to ensure your money makes it to retirement with you.

Do your research to find a reputable insurance company and compare annuities to find the best product for your money.  Most annuities will grow in value and offer little to no risk of losing your principal value.  Fitzsimmons warns that even the best annuity will do nothing for you if purchased through the worst insurance company.  That is why it is best to speak with an expert to determine a wise place to invest your money.  Most insurance companies can take your pension or 401k annuity rollover and offer you guaranteed income over your lifetime.

In “Save Yes. Spend No. Lessons we’ve learned from the recession” by Geoff Williams of Wallet Pop, he summarizes the new habits that may help the next generation avoid financial struggles.  MetLife surveyed 2,200 adults and found that they have made important changes in their spending habits.  They are not spending as much money on non-essential items, are building up cash savings, and are saving more by using guaranteed income or low-risk products such as an annuity.

While 15% of those surveyed said they have spoken to a financial adviser and/or updated their portfolio to reflect economic changes, 15% is a relatively low number.  Many people either don’t have the money to save right now or think that they don’t have the money to save.  Those are precisely the consumers that should seek advice from a professional because they can help you “find” the money to protect your future.  Williams stresses the benefits of purchasing an annuity or other low-risk investment: a guaranteed stream of income that will continue over your lifetime.  A financial adviser can search for the best annuity rates and match consumers with a product that is right for them.  It is wonderful that people are more concerned with their financial future now; speaking with a financial professional is just another aspect of that.