Date posted: March 30, 2011
According to Insurance & Technology’s Anthony O’Donnell, people say they will save more money for their future when they are shown a simulation of themselves in retirement age. His article “New Life & Annuities Sales Tool: Aging Simulation” says that Allianz Life is likely to be one of the first financial companies using the tool. Stanford University researchers are using virtual technology to basically scare young people into saving more money for annuity products and other investments in retirement. Traditionally, insurers have used fear to get people to save more and purchase insurance products like life insurance and annuities. It works because no one wants to die early and leave their family in a difficult position or retire without any way to pay their bills.
At Stanford, they are showing young people images of themselves at retirement age. They have even gone so far as to show the avatars smiling when they save money and frowning when they do not. In one of the experiments, the young people who saw their aging avatars said they would save twice as much money as those who did not see theirs. By the end of this year, Allianz is hoping to have a similar yet simpler version for their advisors to use free of charge. This may prompt more investors to turn to a death benefit annuity, offering survivors the monthly payouts that the deceased would have received. Of course Allianz is hoping that they will see an overall increase in their sales as investors young and old worry not only about their retirement future but the future of those who outlive them.
Date posted: March 28, 2011
As sales of variable annuities increase, many advisors are concerned that companies will not be able to hedge the products. According to “Surge in VA sales leads to capacity questions” by Darla Mercado of Investment News, advisors worry that companies won’t be able to keep up with the sales increase and are looking deeper into the variable annuities they sell. LIMRA says that $140.5 billion of variable annuities were sold last year, an increase of 10% from the year before. Companies are trying to balance offering transparency to their advisors so that they can see how the risk is managed without divulging too much of their strategy. It can be tough to find out exactly what insurers are doing to manage their risk, but companies like Prudential and MetLife are working with advisors and wholesalers to satisfy the issue of transparency in their variable annuities.
The president of Silverman Financial, Inc. actually flew to Prudential to uncover some answers for himself. After taking the contracts apart to study them and putting everything back together, he determined that the company had nothing to hide from advisors. Insurance companies do provide literature to advisors communicating their risk strategy; it’s just that some do it better than others. For those looking to compare equity linked CDs, annuities and other investments and see how companies manage the risk associated with them, you usually just have to ask for the information.
MetLife started an open communication with advisors during the financial crisis, and although they stopped quarterly conference calls, they still offer information on their hedging and revenue sources through literature. Jackson National offers advisors a question and answer paper that deals with hedging, interest rate swaps, and more. Prudential not only offers continuing education on hedging, but they publish a white paper dealing with many different aspects of annuities. Some companies offer up more information than others, but since the previous three companies account for 40% of the sales of variable annuities, you can see that it is possible to get information to advisors who then pass it on to clients. It is still important that insurance companies sell more than just variable annuities because you never want to put all of your eggs in one basket.
Date posted: March 24, 2011
According to The Street article “Putnam CEO Wants Annuity Oversight Agency” by Joe Mont, Putnam Investments’ CEO would like an agency similar to the FDIC in charge of lifetime income products like annuities. Not only would he like the agency to oversee these investments, he would also like it to insure the products like the FDIC insures the money in banks. CEO Robert Reynolds even named the fictitious agency the Lifetime Income Security Agency and he is calling on Congress to adopt his idea. The agency would have the power to approve or deny all lifetime income products sold in the U.S.
It’s not that far-fetched of an idea, especially since the federal government, under President Obama’s lead, has been pushing Americans to secure their retirement with lifetime income products like the 401k annuity. As we live longer, many retirees are facing three or more decades of retirement in which they need income to sustain their lifestyles. He points out that overall sales of annuities have been relatively flat, partially because investors are wary to put so much money in one company whose guarantee lasts only as long as they are in business. While choosing a top company takes a lot of that risk away, Reynolds argues that government insurance would help bring many more investors to the lifetime income of products like annuities.
Unfortunately some investors are turned off from these excellent investments because of stories they have heard about a few bad companies selling products that were too good to be true and not following through on their promises. With a government agency overseeing those in the lifetime income business, only legitimate companies and good products would be approved. This could greatly increase the consumer trust level for products like annuities, draw-down funds, and guaranteed pay-out plans. Products like these, especially when they have death benefits, can carry Americans through a long lifetime without the worry of how they will pay their expenses in retirement.
Date posted: March 23, 2011
Here is the next entry in our series of real world questions answered by an Annuity FYI expert.
I am quitting my job and going back to school. I am searching for a vehicle into which to roll over my TSA-403b retirement plan. I am 35 years old and will need to be able to withdraw from the account as needed to pay for school expenses. Naturally, I want to minimize penalties, taxes, and fees. What should I do?
Excellent question. You can transfer this plan to a new annuity and arrange for regular withdrawals. However, without proper planning you will be hit with a 10% federal excise tax on top or ordinary taxes, since you are under 59 1/2 years of age. Fortunately for you, Rule 72-T of the tax code allows people under 59 1/2 years of age to make withdrawals without incurring the 10% federal excise tax, PROVIDED you abide by 72-T guidelines. One of the primary guidelines is that payouts must be based on your life expectancy (this is what “SEPP” refers to — Substantially Equal Periodic Payments) and extend for the greater of 5 years or age 59 1/2.
For example, if you start taking 72-T payments at your age of 35, you must continue receiving them for 24 1/2 years (until you reach the age of 59 1/2) to avoid the penalties. If you started taking payments at age 57 you would have to take them until age 62 in order to avoid any penalties.
Annuity FYI can help you set up withdrawals to avoid the 10% federal excise tax, and recommend some excellent variable and fixed annuities. Please contact an Annuity FYI expert for more information and to review your specific situation.
Date posted: March 21, 2011
With the hiring of Steve Kluever from Jackson National Life Insurance Co., The Hartford Financial Services Group Inc. hopes to increase sales of their variable annuities. Investment News’ Darla Mercado writes about the surprise transition in “The Hartford nabs VA exec from Jackson.” Since Hartford and Jackson have taken very different approaches to business following the financial meltdown of the past few years, many industry insiders were surprised by this transfer. Kluever will head a new position at Hartford as the vice president of annuity product and marketing. In 2006 Hartford was the fourth largest seller of variable annuities, but fell drastically after the economy went sour. They hope to come back from their significant variable annuity hedging losses with this new hire and position within the company.
Hartford was in 20th place last year in their sales of variable annuities, quite a jump from their fourth place status four years prior. Jackson, on the other hand, was the third largest variable annuity seller, likely due to their approach to product development in the past few years. Jackson’s financial advisors and clients have around 100 variable annuity subaccounts from which to choose, while Hartford chose to lessen the risk in their product line. While Hartford has to be careful about the changes they are making to increase their variable annuity presence, they are starting slowly by adding annuity wholesalers and enhancing their Personal Retirement Manager variable annuity soon. Working 401k annuities into their plan might also be an effective way to increase sales since even the federal government is suggesting these retirement products to help Americans combat longevity risk.