Annuity FYI Blog

Two organizations are working together to increase the knowledge out there regarding fixed annuities.  Insurance News Net’s article “NAFA and Insurance Insight Group Announce Collaboration to Further Annuity Education” discusses the partnership.  The National Association for Fixed Annuities will be working with the Insurance Insight Group on this endeavor to educate people within the annuity and financial industry, legislators, regulators, consumers, and the media.  NAFA is the only organization that specifically works to promote fixed annuities.  They include fixed indexed annuities, income, market value adjusted, and declared rate annuities.

The collaboration with IIG will allow NAFA to reach a broader group of people in their goals of expanding their educational focus and compliance programs.  Since fixed annuities are such an important tool in retirement, these organizations want consumers in employer-sponsored retirement plans to know about 401k annuities, as well as all those who don’t have access to one to know about the product.  This is the only product that guarantees lifetime income, allows you to grow your savings, and protects that savings from losses in the stock market.  NAFA has been working since 1998 on their mission with fixed annuities.  This partnership with IIG can only grow their success and help more consumers gain insight into this important retirement tool.

The Wall Street Journal cautions annuity investors to protect themselves against inflation in Tom Lauricella’s “Inflation’s Toll on Annuity Payout.”  By opting for a lower yield on your investment today you should be able to help protect your savings.  Immediate annuities protect investors with their guaranteed lifetime payouts, so they have seen a surge in popularity after the recent turmoil in the stock market.  Since you begin receiving payouts from immediate annuities soon after purchasing them, the low interest rates in place now could have a negative impact on your future money if you don’t take a few steps to protect yourself.

The article advises investors to look into flat payout options.  There are different riders that can be added to your policy to use this advice.  If a couple in their upper 60′s invested $50,000, their yearly payouts would be around $3,400.  Without protecting against inflation, in 20 years they would be receiving the same amount, but it would only be worth around $1,800 in today’s value.  With a rider that boosts your payout by 3% each year, an annuity giving you around $2,500 the first year will be paying out $4,500 by the 20th year.  When you compare annuities with inflation protection to those without, it might be to your benefit to protect your money against future inflation.

John Hancock Variable Annuities has a new marketing campaign called ‘Retirement Talk,’ according to a company press release.  The program hopes to connect advisers and clients to talk about important retirement issues.  Investors who want to make sure they have the best security in their retirement portfolio will appreciate this easy way to connect with their advisers whether they want to discuss fixed annuity rates or some other retirement product.  ‘Retirement Talk’ is available online in video or CD form and is aimed at educating clients on annuities and the importance of their guaranteed lifetime income options.

Many investors ignore annuities because they think the product is too complex and would not be valuable to them.  ‘Retirement Talk’ simplifies variable annuities and fixed annuities by using clear terms that investors not only understand, but to which they relate.  John Hancock believes that this straightforward program will help advisers get more business as clients realize the importance of guaranteed income in retirement.  ‘Retirement Talk’ also offers advisers a simplified administrative process so those who may have avoided selling annuities now have more support.  Authorized advisers can offer the program to their clients and it can be found on John Hancock’s website.

According to “Market-Linked CDs Represent a Hybrid Between CDs and Stocks,” Richard Barrington of Money Rates says that equity linked CDs are a nice combination of the two investments.  They offer some stability like traditional certificates of deposit along with the chance to participate in the upside of the stock market.  Equity linked CDs are FDIC insured and you are guaranteed a return of your principal investment if you hold the CD to maturity.  You also get a return based on the stock market’s performance over the time you had your CD.

Each CD has its own specific terms and those are important to know in detail before making the investment.  The equity linked CD criteria you should know consists of which specific stock index your CD is linked to and what the participation rate is.  It won’t be 100%, but the higher the rate, the better.  You also want to see if there is any cap on your gains, how your gain is calculated, and how solid your guarantee will be.  Make sure that FDIC insurance covers your total investment so you don’t only rely on the solidity of the bank offering your CD.  The key in selecting an equity linked CD is knowing exactly what your terms are and how the product will work for you.

There is an alternative investment out there for those seeking both high potential returns and annuity benefits, according to Investopedia’s “Are Equity-Indexed Annuities Right For You?”  Author Brigitte Yuille explains how the indexed annuity can work for more conservative investors.  The payments can be deferred until a later date or begin immediately just like traditional annuities.  Your return is linked to a stock market index like the Dow Jones Industrial Average.  Because of this, you may take on more risk than you would with a traditional variable or fixed annuity.

Equity indexed annuities have a minimum guaranteed interest rate, no matter what happens in the index to which they are linked.  While this rate is low, in an increasing stock market you will see higher gains than with a fixed annuity.  The market risk is different than with variable annuities because of this guaranteed minimum.  With any of these products, annuity rates depend on the time you purchased your product and the stipulations in your individual annuity contract.  With an indexed annuity, you have to look closely at the participation rate, any caps on the interest rate, and whether there is a spread, margin, or asset fee attached.

The guaranteed minimum returns for indexed annuities usually make them a good investment.  They also offer tax-deferred growth and an interest credit on the annuity’s anniversary date.  Two downsides that investors have realized are the inability to withdraw your money early without hefty penalties and abnormally high commissions on some products.  Speak with an expert to see if an equity indexed annuity is right for you.