Annuity FYI Blog

Fixed annuities guarantee lifetime income payouts based on a number of factors.  In EHow’s article “About Fixed Annuity Rates,” John Hewitt discusses the investments which guarantee a certain rate of return.  Fixed annuity rates change periodically like all interest rates, and your rate is usually locked in when you purchase your fixed annuity.  Insurance companies invest fixed annuity funds in assets like bonds or treasury bills that have fixed returns.  Fixed annuities are safe and dependable investments because they guarantee your rate of return and pay you monthly income through retirement.

Your fixed annuity rates are based on your age, health status, gender, and the market interest rates.  One fixed annuity benefit that investors like is the tax deferral.  Taxes are deferred on your principal and interest earned until you start receiving your payments.  Of course the guaranteed returns are popular as well.  Other investments don’t have guaranteed payouts, especially when they are tied to a stock market.  Fixed equity indexed annuities are a hybrid annuity that offers benefits from both traditional fixed annuities and those tied to a stock market index.  Fixed annuities, like most investments, are not right for every investor.  But if you plan on keeping your money through the maturation period, find a rock solid insurer, and get expert advice on choosing a fixed annuity, this investment could help finance your retirement.

Certificates of Deposit, or CDs, are investments that offer you a payout after a fixed term, usually around five years.  The U.S. Securities and Exchange Commission offers this information on their website.  Equity linked CDs base your interest on a specific stock market index, so you have the potential for significant gains.  While you have the risk that you won’t get any gains, you don’t have to worry about losing your principal.  Your initial investment is guaranteed by the financial institution with which you invested.  The protection of FDIC insurance is a big reason why many people choose an equity linked CD as an investment.

There are a number of options and terms to understand when you compare equity linked CDs with other investments.  A liquidity risk is associated with the investment, so make sure you will not need the money before your specific term is up.  Not only will you likely incur penalties if you withdraw your money early, because of market risk you may receive less than your initial investment if you take the money out too soon.  Check to see if there is a call risk associated with your equity linked CD.  If so, a called CD may yield you less if it is called before your term is up.

FDIC insurance should cover your equity linked CDs original investment and interest.  Always make sure that there are no limits to the FDIC insurance for your particular investment.  Check into how your return is calculated because may products take averages into account rather than the exact closing price of your stock market index on the date of maturity.  This could be to your benefit in a declining stock market.  Be aware of your participation rate and any caps on your return.  If your participation rate is not 100%, you will get less than the actual stock market return when your return is calculated.  The same goes for any cap on your interest rate.  Even if the market increases 20%, if your cap is 10%, your gain will be 10%.  Equity linked CDs have different tax consequences than an annuity or other investment, so talk to a tax specialist about how that might affect you.

According to Henry Steelman’s Annuity News Journal article, “Annuities Generate Retirement Income,”  annuities are a great investment to carry you through retirement.  Running out of your cash flow seems to be the biggest worry for those approaching and in retirement.  Since most annuities pay you monthly income over your entire lifetime, they can be better investments than some 401k’s and IRA’s.  Many people transfer to 401k annuities upon retirement because using your 401k money to purchase a lifetime annuity will ensure guaranteed income to last your entire life.  Another advantage that annuities have over these plans is that they rarely have a limit for annual contributions.  You can always find a good annuity without a contribution limit, while you can’t always find that with other investments.

If you still have a few years left before retirement, you can purchase a deferred annuity and your payments will begin at a later date.  You can even continue to make contributions to some annuities and your money will grow depending on your annuity rates.  Any money that you earn in your annuity is tax-deferred, another benefit to using annuities over other retirement products.  If you need the money right away because you are retiring soon or already have, you would purchase an immediate annuity.  The best immediate annuities are tailored to your life goals and how you want to spend your money.  The author says that all annuities do a good job generating retirement income, so you just need to find the product that is best for you.  Since it is difficult to take your money out after purchasing an annuity, you want to make sure that you plan to use the annuity to generate income for the rest of your life.

Clients of the Hartford Financial Services Group have a lot more investment options now when they are searching for a variable annuity.  In the Annuity News Journal article “The Hartford Introduces New Annuity Options,” Steve Thompson discusses the new choices available.  Years of a volatile stock market have pushed many investors to the security of annuities, because of their guaranteed lifetime stream of income and risk protection from the equity market.  In particular, variable annuity products give an appreciation potential during a rising stock market while also guaranteeing some type of minimum return.  Hartford’s variable annuity, called the Personal Retirement Manager, will have some new options and riders for investors.

Safety Plus guarantees investors at least ten years of accumulation benefits, with both protection of principal and participation in the market.  After the ten years, investors who transfer their money to the Personal Pension Account Service with Hartford will be credited a bonus to their future payout rates.  The Future5 and Future6 options give market participation with a 5 or 6% deferral bonus after determining what your guaranteed portion will be.   These bonuses will stand firm upon maturation and won’t depend on the immediate annuity rates at the time.  Hartford’s new service, Personal Protection Portfolios, is available with Safety Plus and Future6.  The assets in your account are spread over multiple investment options which will diversify your risk and allow you to participate in many different markets.  There are also two new death benefit annuity options for investors who are very concerned about passing their annuity on to a beneficiary after death.  All of Hartford’s new variable annuity products are for the benefit of their consumers and are working to meet changing demands.

Four more states and the District of Columbia will ensure that consumers are getting the best annuities by the end of this summer, according to Linda Koco of Insurance News Net.  In “More Annuity Suitability Rules Going into Effect This Summer,” the Annuity News editor says that the newest states to adopt the NAIC’s rules will be Rhode Island, Oregon, Ohio, North Dakota and Washington D.C.  The NAIC’s Suitability of Annuity Transactions Model Regulation (NAIC 2010) has been a model for many states to comply with the Dodd-Frank Wall Street Reform and Consumer Protection Act.  All states must comply by June 16, 2013.  States must ensure that insurance companies are selling consumers the best annuities for their situation and require agents to take a four hour class about annuities and their impact on consumers and taxes.

There are 17 states and territories that already have laws mimicking NAIC 2010.  Six states have plans already in the works, and a total of 28 states are expected to have working plans this year.  The Insured Retirement Institute (IRI) and RegEd, a compliance and education firm, are working together to provide the annuity training to agents and state governments.  The Oregon Department of Consumer and Business Services found that most insurance companies and agents have been receptive to the new rules, as long as they are similar to the NAIC guidelines.  In 2005, the state issued guidelines deterring the sale of unsuitable annuity products and these new guidelines have built from that initial model.  Products like the 5 year fixed annuity and other annuities must be the best choice for the consumer in order to pass the standard ruling.  All of the NAIC regulations keep insurers and agents accountable for protecting consumers from products that they should not buy because they aren’t in their best interest.