Annuity FYI Blog

For the third year in a row, Senior Market Advisor publication has surveyed advisors to find out the best and worst of their industry.  According to a press release, their survey results have been published in the March issue.  They asked licensed financial and insurance advisors who work exclusively with seniors to report on multiple facets in the industry, including what really worries them and disrupts their sleep.  The survey provided great insight into what marketing campaigns are working or not working, what changes have come about with new technology, how their advisor to client relationships have changed, and what concerns their clients currently have.

The biggest advisor concern, voiced by 30% of respondents, was the economy.  Generating leads was the second biggest concern, voiced by 29% of the respondents compared with 42% in the previous year’s survey, making it the biggest concern last year.  Of the advisors surveyed, 40% work in an office with other agents outside of their home, while 38% work from their home.  Advisors saw their biggest success last year with selling annuities, according to 41% of those surveyed in 2011.  This year, however, annuities came in second place as 32% of advisors saw their biggest success with annuity products.  The top spot this year was taken by life insurance, where 35% of advisors questioned saw their biggest success.  The rest of the survey results can be found in Senior Market Advisor.

Written by Rachel Summit

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In the article “Hartford Financial exiting annuity business, will focus on property and casualty insurance,” an Associated Press article in the Washington Post talks about the upcoming changes to Hartford Financial.  April 27 of this year will be the final date that Hartford sells new annuity products.  During the second quarter, they think they will have $15 to $20 million in annuity business.  By leaving the annuity market as well as the life insurance and retirement plan markets, Hartford will greatly cut costs and operate at a lower capital level.

Hartford is hoping to sell their life, retirement plans, and broker-dealer Woodbury Financial Services.  They believe that these units will achieve more success with different companies.  It’s estimated that they could get between $2 and $3 million selling their individual life, retirement plan, and broker-dealer businesses.  Investors in Hartford want to see it focus more on its property and casualty business by moving away from all of the complex business operations with lower returns that are unrelated to property and casualty.

They could see up to $4 billion in new capital through this business change over the next few years.  From 2010 to 2011, Hartford’s net income took a drastic dive from $619 million to $127 million.  Sales of individual annuities decreased by $10 million from the fourth quarter of 2010 to the fourth quarter of 2011.  Last year, Hartford had annuity revenue of $1.84 billion.  There are many analysts who believe that the Hartford has made the right move by exiting the annuity business.  Hartford Life & Annuity Insurance Co.’s Moody’s rating went from stable to negative, but the parent company retained its stable rating.

Written by Rachel Summit

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The Department of Treasury recently made it much easier for people to buy long-dated deferred income annuities, which are also known as longevity insurance or advanced life deferred annuities (ALDAs).

The new regulations mean, for instance, that if you use tax-deferred assets to buy an ALDA at age 60 that will pay out an income if and when you reach age 85, you don’t have to count those assets when you calculate how much you must withdraw from your tax-deferred accounts as annual required minimum distributions (starting at age 70½).

Great news, right? Maybe. It remains to be seen whether the rule change will spark interest in this interesting product. So far, demand has been low. But, in my opinion, ALDAs are the perfect antidote to certain types of financial insomnia.

Here’s the ALDA story. Let’s say you’re 60 years old, you have $500,000 in savings, and you’ve inherited dynamite genes (with long telomeres). You could take $32,000 of that half-million and buy an ALDA that pays you $2,000 a month starting at age 85. If you died before then, you’d get nothing.

Why make that bet? Because you could spend your remaining $468,000 in savings without the anxiety about outlasting your money that plagues many retirees. Many people—including people with ample savings—clip coupons and skip vacations during retirement because they’re hoarding their money against the possibility that they might live to 100.

An ALDA takes that problem off the table, without requiring you to surrender control over a large percentage of your savings. It may even be cheaper in the long run than buying a variable annuity with a living benefit guarantee and paying a 1% fee each year for the rider.

Like the idea, but can’t tolerate the thought of forfeiting the $32,000 due to an early demise? Then buy an ALDA with a death benefit. In that case, however, the upfront cost would be almost double—$63,000 for $2,000 a month at age 85, according to one quote—and you would have to count those assets toward your RMD. Uncle Sam won’t let you have it both ways.

Written by Kerry Pechter

NAFA, the National Association for Fixed Annuities, wants you to be informed about anything and everything related to fixed annuity products.  Since next month is Financial Literacy Month, NAFA came up with a new publication to inform everyone about fixed annuities and answer any lingering questions.  According to their press release, NAFA wants people to use this document to ensure the suitability of a fixed annuity related to their individual needs.

Their Education Committee created “Tips to remember when buying a fixed annuity” to give consumer tips as well as additional information and education.  NAFA says that by reading this document, consumers will be able to follow a couple easy steps to make sure not only that a fixed annuity is right for them, but also make sure that they get the best fixed annuity for their financial needs.  These products have been increasing in popularity because their guarantees can help finance your retirement.

The CEO of NAFA said that they released their helpful document now because April is a perfect time to take charge of your finances.  You have just filed your taxes and done spring cleaning at home, so you know where you are and what you need to change in your life to get to the future you desire.  With Financial Literacy Month in April and National Retirement Planning Week falling between the 9-13 of April, there is no better time than the present to get informed about fixed annuities.  You can find a wealth of fixed annuity knowledge on NAFA’s website and in the fixed annuity information center.

Written by Rachel Summit

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There are many reasons why it is crucial to make sure you update the beneficiary on your annuity accounts.  Even if your will says that one person should receive your annuities and other money once you die, the person you have listed as your annuity beneficiary with your insurance company will get your annuity funds.  In the Chicago Tribune’s Local Naperville section, John Seyman answers some annuity beneficiary questions in the article “Beneficiary in annuities and IRAs.” Some of the highlights are below.

If you have inherited an annuity, it is not difficult to get your money once you prove that you are the beneficiary.  You will need to fill out a specific request form with the annuity provider and send them a copy of the deceased’s death certificate.  Even if you have a will stating that you are an annuity’s beneficiary, you still have to fill out the request form and ensure that you are listed on the annuity paperwork as the beneficiary.  If you are not, the annuity money will go to the listed beneficiary.

There may be some tax issues that arise if you receive a lump sum payment as an annuity beneficiary.  You have to pay federal “ordinary” income tax on any annuity gains that are above the paid premiums.  Depending on your tax bracket, this income tax could be higher than the capital gains tax that would have been paid had the deceased still been alive.  There are a few different ways to defer these taxes depending on the type of annuity.  If you are the deceased’s spouse, you can transfer your death benefit annuity to another IRA annuity without tax penalties.  You could also transfer the annuity to a non-qualified “stretch annuity” so that your taxes will be paid yearly as you receive your annuity money.  Another option is annuitizing your death benefits, so that you will get great tax benefits but will lose access to the lump sum.

Non-qualified annuities are those products sold by insurance companies which don’t have ties to other federal or tax programs.  Qualified annuities have an affiliation with other federal or tax programs like an IRA.  These qualified annuities offer you both the advantages and disadvantages of their associated programs.  The difference in taxes is significant.  You will pay taxes on any earnings above the premium basis for a non-qualified annuity that you have inherited.  With a qualified annuity, you’ll pay ordinary income taxes on all of your proceeds as a beneficiary.

Written by Rachel Summit

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