Annuity FYI Blog

While Americans have been focused on increasing education about annuities and retirement income options, our neighbors in Europe are dealing with the same issues.  MetLife Europe UK forecasts a 65% increase in retirees asking financial advisors about annuity products.  In the FT Advisor article, “IFAs expect rise in advice on annuities: MetLife,” Aamina Zafar says that fixed term annuities like the 5 year fixed annuity will become increasingly popular over the next two years.  Retirees and financial advisors are calling for more innovation and new products to help retirees.  They believe that better options should be out there to finance retirement.

Unfortunately, 47% of those surveyed did not use a financial advisor’s help when making decisions regarding their retirement income planning.  Of those, 17% admitted to regretting that choice, while it’s likely that more actually regretted it.  About 27% of retirees sought the advice of a financial advisor for retirement decisions, 21% used their employer’s 401k annuity or other retirement plan, and 9% just asked their family and friends for advice.  In order to get retirement income, half of retirees were drawing down their savings and capital rather than receiving income payments from annuities or pensions.  No matter what retirement vehicle you use, speak with an expert to help give you all of your options.

Written by Rachel Summit

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People have been studying the psychology of annuities for years because they have the benefits many are looking for, but are not sold in the numbers that it seems they would be.  Annuities offer the same type of benefits and security as the beloved pension, but are not used often by those without the benefit of a defined pension.  In the Investment News article, “Insights into the annuity puzzle,” they look into what behavioral and psychological factors lead people to go against what would seem the rational choice.  Immediate annuities offer guaranteed income for life, so something is keeping a lot of retirees from choosing them.

One problem is that many people just don’t have enough savings in retirement.  Some have no savings at all and others have so little that they have to find another way to fund their retirement by working the rest of their life or changing their lifestyle.  When annuities are readily available as a choice for retirees, they are more likely to be chosen.  What is problematic for the annuity industry is that 401k annuities are not very readily available as an option.  Since it is more difficult for people to go out on their own and research annuities, they are more likely to choose what their plan has to offer.

The smallest differences in wording can make a world of difference in decision making, so those who see the word ‘investment’ rather than something else may not realize the security and guaranteed retirement income that annuities have to offer.  People also have an aversion to loss and worry that the risk of dying right after purchasing their annuity is too great.  It has been shown that losses hurt twice as much as gains feel good.  But research has shown that annuities would benefit most households, whether they combat the risk with a death benefit annuity or not.  The government is working hard to get annuities offered in more 401k plans and increase education about annuities to make sure that Americans have a fully funded retirement option.

Written by Rachel Summit

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In a rebuttal of an anti-annuity article in the Huffington Post, Steve Vernon of Money Watch says that the author drew sweeping conclusions without fully researching annuities.  Vernon’s article, “Huffington Post’s Slam on Annuities Is Uninformed and Way Off Base,” says that while some annuities are not great products, that surely isn’t reason to conclude that all annuities are not.  He says that immediate annuities can be an important part of many retirees’ portfolios.  The monthly income from immediate annuities pays you for the rest of your life and doesn’t base your payments on any economic conditions.

Vernon also says that the Huffington Post is misinformed about the government’s interest in offering annuities to 401k plan holders.  He is disturbed that they call annuities toxic and say the government is doing a disservice to Americans by pushing what they call a “retirement rip-off”.  In fact, the government has sought feedback from citizens and companies alike in their discussion of annuities and the fiduciaries making 401k annuity decisions have no conflict of interest as the Huffington Post suggests.  Immediate annuities, both those used with 401k plans and those not, have been shown to give the most retirement income in comparison to other sources.  In this rebuttal of a poorly researched article, the author simply says to do your research, compare annuities, and get the facts before bashing a product.

Written by Rachel Summit

Security Benefit Life Insurance Company has introduced a new fixed annuity built for 403(b) plans.  According to a Market Watch press release, “New Fixed Annuity From Security Benefit Life Insurance Company Brings Flexibility to 403(b) Marketplace,” this ‘Total Interest Annuity’ has one really interesting benefit.  This fixed annuity is SBL’s first to allow ongoing contributions of up to $16,500 every year.  You can also use IRA’s or other rollovers to fund the ‘Total Interest Annuity’.

The competitive guaranteed crediting rate will be reset once a year.  SBL hopes that by offering a high initial crediting rate along with a 2% bonus on any contributions during the first year, they will get people to invest early.  This includes a bonus for any 401k annuities or other rollovers.  They want to show that they are committed to the 403(b) marketplace with this new fixed annuity.  SBL is also showing their support for advisors by giving them a product to ease clients’ worry about risk and volatile markets.

Security Benefit has over 200,000 retirement accounts, mostly in the K-12 education sector.  They believe that the ‘Total Interest Annuity’ will help retirees looking for safety and competitive crediting rates.  The product is meant for conservative investors who are trying to get away from high market risk and/or are very near retirement.

Allianz Life recently found that the majority of Americans are searching for guaranteed income in retirement, but don’t know how to find it.  According to a company press release, Allianz Life Insurance Company of North America conducted a survey showing that 86% of non-retired Americans want to have a guaranteed income stream in their retirement.  That was the most popular choice for having a secure retirement; next was having a 401k plan, selected by 71% of those surveyed.  Transferring to a 401k annuity is an excellent way for those who already have 401k plans to receive the guaranteed income benefits of annuities.

Close to half of those surveyed said that obtaining this guaranteed retirement income stream was the most important retirement need that they had yet to meet.  They found it much more important than finding a job that offers a 401k or getting a diversified portfolio of investments.  The President and CEO of Allianz is not surprised to find so many Americans looking for a guaranteed income stream in retirement, but worries that Americans aren’t informed enough about the annuity products that can make this retirement income stream available to them.

Annuities pool risk, and they are the only retirement income products to do that, therefore annuities are the product to guarantee retirement income over your entire lifetime.  Of the non-retirees surveyed, only 8% currently have an annuity.  Shockingly, 40% don’t have any retirement investments at all and 26% don’t have a plan to get them through retirement.  Allianz Life is dedicated to working with consumers to educate them about the benefits of annuity products and help them make a secure retirement with a guaranteed income stream.

Written by Rachel Summit