Annuity FYI Blog

According to Investment News’ article “NY Life tops 2Q list of fixed-annuities sellers” by Darla Mercado, fixed annuity sales increased from the first quarter of this year to the second quarter.  With sales of $19.4 billion in the second quarter, fixed annuity sales increased 18% from the first quarter but went down 30% from last year.  New York Life Insurance Co. sold $1.74 billion of fixed annuities to nab the top sales spot.  Allianz Life Insurance Co. of North America had the second largest fixed annuity sales of $1.68 billion.  With sales of $1.61 billion, Aviva USA had the third highest sales.  AIG’s subsidiary Western National Life had the fourth highest fixed annuity sales of $1.29 billion, while the fifth highest sales of $1.05 billion were from American Equity Investment Life Insurance Co.

Many believe that the widening spread between fixed annuity rates and Treasury rates is accounting for the increase in fixed annuity sales.  The wider spread also makes it more profitable for insurance companies to handle fixed annuity business.  While fixed annuities have been harder to sell recently, there has been quite an increased interest in fixed indexed annuity products because of their cap rates.  Variable annuities have also seen a sales increase, according to multiple reports.  The $34.4 billion of variable annuities sold this past quarter was an increase from $31.8 billion last year.  New variable annuities sold this quarter totaled $6.22 billion, up from $6.14 billion last quarter.  An increased interest in both variable and fixed annuity products means that investors are looking for secure ways to ensure that their income lasts for the remainder of their lifetime.

The former vice chairman of the Federal Reserve Board, Roger W. Ferguson Jr., is working hard to get Americans to increase their savings for retirement.  According to “Former Fed official: Workers need bigger nest eggs” by Len Bosilovic of the Pittsburgh Post-Gazette, the current employee of TIAA-CREF notes that research shows most couples will be $250,000 short of the money they need for retirement.  He believes that more companies need to make a 401k annuity transfer available to their workers upon retirement since only about a quarter of them do currently.  Ferguson says that you need four things in place to save successfully: enough funding, a diverse portfolio, access to quality advice, and guaranteed retirement income to meet your basic expenses.

While saving 10 to 14 percent of your pretax income should be the goal, Ferguson says that workers should save anything they can at any given time.  Too many people wait because they don’t think they have as much as they should be saving or because their companies don’t offer a traditional 401k plan.  Most 401k plans offer diversification and seeing a reputable financial advisor is the best way to keep from getting confused and obtain quality advice.  Annuities are the best source of guaranteeing lifetime income to cover your basic needs, according to Ferguson.  He does suggest looking into annuities that account for inflation or investing in annuities that give you the potential for a rise in income.  Getting started with your savings plan is the hardest part, so even if you think you are starting late just start.

The list of the top variable annuities sold in bank channels this year was just compiled.  The Bank Investment Consultant article “The Most Wanted List (of Variable Annuities,” by Kerry Pechter, talks about the most popular variable annuities of the year thus far.  It’s well known among financial consultants and advisors that variable annuities do not sell themselves; the benefits need to be sold to investors.  The benefits of protection from a down market and potential for upside market gains are what many investors are looking for today.  Variable annuity sales in the bank channel increased in the first quarter of this year, while sales in many other channels actually declined.

Jackson’s National Perspective II was the top seller.  Jackson appeals to investors and advisors looking for more flexibility and a lot of options as opposed to a low cost.  Their GLWB option, called the Joint Lifetime Freedom 6, offers increases in the guaranteed benefit base.  Prudential’s Advisor Plan III and APEX II have been replaced by a new, similar product but still account for the second highest bank annuity sales.  Their aggressive marketing and their “Highest Daily 6 Plus” living benefit, along with fees in line with other annuity products on the market have helped maintain Prudential’s variable annuity success.

The third best selling of the bank channel variable annuities is Nationwide Bank of America’s Future Venue.  The product offers L.inc, a popular and affordable lifetime income rider.  Pacific Life’s Voyages is the least expensive and most conservative on this list.  When you compare annuities with these options, conservative investors tend to be satisfied with Pacific Life’s CoreProtect Advantage lifetime income option and their other riders without rollups.  Variable annuities with GLWBs and rollups are great investments in today’s economic climate.  It’s important for advisors to speak with their clients about the products since clients rarely research variable annuities on their own.

Dave Kansas of the Wall Street Journal has some advice for dealing with low interest rates in his article “How to Beat Low Interest Rates.”  Many investors, especially those in or nearing retirement, rely on interest payments for their income.  Since rates have been low for awhile now, there are a lot of investors struggling to stretch their lower incomes.  Rates across the board, including annuity rates, have been low due to the worry about the economy, deflation, and a fear of too much risk.  There are some solutions to this, but it is wise to speak with an advisor about the best one for you and your situation.

While there is low inflation to go along with these low interest rates, that doesn’t really help investors trying to live off of interest income.  Some good quality stocks are paying dividends higher than Treasurys or municipal bonds, including McDonalds, Home Depot, and Merck.  Putting a portfolio together of strong companies offering high dividends could be a great way to get higher dividend payouts in this time of low interest rates.  It is always risky though because companies that we thought would always be around as recently as 2007 have seen their demise.

Financial advisors have seen an increase in the purchases of annuities to hedge the dilemma of low interest rates.  While their fees tend to be higher than some other investments, they also are paying interest rates between 4.5% and 6% right now.  As investors show more concern about guaranteed returns, the benefits of annuities are making them increasingly popular.  Some investors are using mutual funds to increase their yield and diversify their risk.  They can increase the risk in some portfolios though, so advisors tend to recommend intermediate or long term bonds over short term.  The author believes that we will be talking about ways to combat low interest rates for quite awhile still.

In USA Today’s article “Your Money: Some companies offer 401(k) annuity option,” Sandra Block explains how you can avoid the possibility of outliving your income.  It’s quite hard to determine how much money to withdraw from savings during your retirement.  You risk not being able to pay your bills withdrawing too little or outliving your savings withdrawing too much.  Some employers have started offering 401k annuities to their employees.  Annuities offer guaranteed income over an investor’s lifetime in exchange for a lump sum payment to an insurance company.  While some investors may be wary of handing out a large sum of money on their own, having a portion of one’s 401k put into an annuity is more appealing to many people.

While not many companies are offering this 401k annuity option just yet, those who do offer both fixed and variable annuities.  Your fixed payment is based on fixed annuity rates and will not change, while variable annuity payments are based on a portfolio of stocks or bonds.  Some of the advantages to buying 401k annuities are the lower costs and lower risk of low interest rates.  Since your company will buy annuities at institutional rates, your fees, commissions, and administrative costs will usually be lower than purchasing the annuity on your own.  When purchasing an annuity on your own, the interest rate at the time of purchase will determine your monthly payment.  401k annuity plans take the average interest rate over the period of your contributions, usually most of your career.  You can have a better chance for higher interest rates over time, especially in a time of recession like we are in currently.