Annuity FYI Blog

In the U.S. News & World Report article, “Do You Need an Annuity?,” Phil Taylor goes through the benefits of annuity products in retirement.  Annuities came about to ensure that retirees do not outlive their savings.  Because of their low risk, fixed annuities are a conservative investment popular with retirees because of their tax-deferral benefits, exemption from creditors, and avoidance of probate through death benefits.  Their penalty for early withdrawal is usually gone after less than ten years and there is usually no limit to the amount of contributions you can make.

The article describes how you receive monthly income payments from an insurance company in exchange for either a lump sum initial payment or several installments.  The amount you’ll be paid out is predetermined whether the amount paid in is more or less that the payout you’ll get.  The payout options are detailed as follows.  If you choose straight life, you’ll get monthly payments for as you long as you live, but nothing will be passed on to your heirs.  If you choose life with period certain, death benefits will be paid to your heirs to make up for any money you paid into the annuity that has yet to be paid back.  There is also the choice of joint life for you and a spouse or joint life with period certain where your heirs would receive death benefits just like the above mentioned annuity.

With a systematic withdrawal, your payments will be fixed and will come to you either monthly, quarterly, or yearly.  Finally, you can get a lump sum annuity payment at a date in the future.  Fixed annuities are a great option for retirees, especially those who don’t have traditional pensions or multiple sources of monthly income like Social Security.  Speak with an expert for more information and to see if an annuity will work for your retirement.

Written by Rachel Summit

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Sammons Retirement Solutions is moving forward with a new variable annuity despite many carriers steering clear of variable annuities.  Since interest rates have been low and the stock market volatile, insurers like MetLife and Prudential have lessened their variable annuity business.  Sun Life Financial, out of Canada, actually left the variable annuity business altogether.  These companies worry about hedging their living benefit guarantees with a less than ideal financial market.  But Sammons says that you just have to focus on the other benefits variable annuities have to offer, those related to tax deferral.  This information comes from Darla Mercado’s Investment News article, “Others retreat, but this carrier is charging into the VA business.”

Sammons has been a staple of the fixed annuity market in the past, but is excited to introduce their variable annuity to the industry.  A new unit of Sammons Financial Group, Sammons Retirement Solutions is also the sister company to Midland National Life Insurance Co.  Sammons’ variable annuity will have up to 80 different choices in the investment menu.  They believe that focusing on simplicity and the tax-deferral benefits of variable annuities will make them successful in this new endeavor.  By staying away from the guaranteed living benefits that are stressing out insurers, Sammons is able to keep costs low and choices high.  They have chosen to compare annuities based on their ability to defer taxes throughout the accumulation period.  This switch in focus on the benefits of variable annuities is likely to be a new trend in the marketplace.

Written by Rachel Summit

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The Insured Retirement Institute, or IRI, has an 11-question quiz on their website that tests retirement financing knowledge.  Julie Jason published these questions in The News-Times in her article “A Quiz to Fine-Tune Your Retirement Knowledge.”  The IRI is focused on educating people about annuities through their nonprofit trade organization.  The facts from the quiz are summarized below.

While 4% of the U.S. population was over the age of 65 in 1990, by 2050 20% of the population will be over age 65.  Proving how strong the impact of inflation is, a loaf of white bread went from costing 20 cents in 1960 to $1.18 in 2000.  Each year that you remain living, you increase the chances that you’ll live an even longer life.  Seventy-percent of the people who are at least 65 years old today will reach the age of 80.  If you plan to retire early, you will have a smaller Social Security payment at retirement along with less in savings, a smaller pension, and fewer dollars in your retirement plan.

Contribute as much money as possible to your qualified plans so that you can achieve financial independence in retirement.  Throughout your retirement, you’ll likely need around 70-80% of your pre-retirement income to live.  While some of your working years expenses will be gone in retirement, your health care costs will likely increase significantly.  Social Security, personal investments, and annuity payments are all sources of retirement income.  While an IRA rollover, annuitization, and a trustee transfer will keep your money safe from taxes, a lump sum distribution will subject your money to taxes.

If you take money from a retirement plan prior to age 59, you are subject to a 10% penalty unless you make a 401k annuity transfer.  In order to ensure that you have enough income to meet your retirement needs, you have to make a plan, set your timing, know any tax penalties, and be sure not to do all of the planning without the help of a professional.  Retirement planning is some of the most important planning you’ll do in your life, so having a professional to help you is key.

Written by Rachel Summit

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The National Association for Fixed Annuities (NAFA) recently had their summit to forecast what is ahead in 2012.  This information comes from Insurance News Net’s article “2012: Industry Views from the 2011 NAFA Summit,” by Rob Billingham.  He gives a summary of six expert opinions in the industry.

Altisure Group’s Niju Viswani believes that annuities will stay strong in 2012, but they will need continuing innovation to keep up with the switch from being accumulation focused to insurance focused.  You will see more death benefit annuity products and annuities with GLWBs.  Also, insurers will have to get creative to deal with the 10/10 regulation, annuities cannot have a surrender charge greater than 10% and it cannot last longer than 10 years.

Fidelity’s Cindy McGarity thinks that 2012 will see a large focus on regulation and suitability requirements.  She believes that companies will be focused on training and carrier consolidation and says that indexed annuities should continue a steady increase.  Brian Mann of Partners Advantage says you need to move past the low interest rates and volatile markets and focus on the guaranteed lifetime income that retirees seek.  Fixed equity indexed annuities with GLWBs offer the peace of mind that many retirees want; they aren’t as worried about the interest rates.

Consultant Harry Stout says that technological advancements and strong capital management will be important focuses for insurers in 2012.  He points out that many variable annuity carriers have started selling indexed annuities as the products have developed to include death benefits and GLWBs.  Mary Ann Lacey of Underwriters Marketing Service says that while she sees an increase in annuity sales, it will be for those who adapt to changing market conditions like tying annuities to long term care insurance.  Asset Marketing Systems’ Joe Anzelone sees increased fixed annuity sales and challenges related to increased regulation.  The experts agree on most of the 2012 annuity forecast.

Written by Rachel Summit

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In “Outlook 2012: Annuities-Industry at Crossroads, With Weatherford, Greenwald, Cortazzo,” John Sullivan of AdvisorOne says that annuities should do well next year despite some potential hurdles.  With two major annuity carriers departing the market recently, you would think that would forecast a big problem for annuities overall.  But that is just a product of some horrible market conditions and the need for annuities now is greater than ever.  Lifetime income guarantees are more important now than ever before as Baby Boomers retire and markets remain less than stable.  As the market makes it harder for insurers to hedge those guarantees and run their companies, the annuity market will likely change to try and keep up.

While there is a greater need for annuity products than there was in 2007, there are fewer carriers to meet that need.  Low interest rates and a volatile market are a double whammy for insurers, according to MACRO Consulting Group’s Mark Cortazzo.  He thinks that advisors should look at products with short surrender periods and liquidity.  He says that his company looks to match annuities with people who need income right away, want security, and may be making no money in a money market.  So even with low immediate annuity rates, there are many consumers who still stand to benefit from the use of annuities in their portfolios.

Matt Greenwald, CEO and president of an annuity research firm, doesn’t believe that the companies leaving the annuities market is quite that significant.  He stresses that factors beyond the annuities market led to the exit of these Canadian insurers and thinks that the annuity industry will continue to do well despite its challenges.  Cathy Weatherford of the IRI says that government recommendations for using 401k annuities and other annuity products so that some retirement income is guaranteed to Americans will also help to strengthen the industry in 2012.  So while the financial markets are making things difficult for the annuity industry, overall it should remain strong and overcome its challenges.

Written by Rachel Summit

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