Annuity FYI Blog

The Annuity News Journal article by Henry Steelman, “Is it wise to delay my annuity,” examines the benefits to deferred versus immediate annuities.  When purchasing an annuity, you have the option to start receiving payments immediately with an immediate annuity or to defer your payments until some predetermined point in the future.  If you choose an immediate annuity, you will start receiving monthly payments soon after your annuity purchase.  This is the best type of annuity for someone who has just retired and needs to maintain their monthly income to meet basic living expenses.  If you have won or inherited money and don’t need it right away, it’s probably a good idea to purchase a deferred annuity.

A deferred annuity has some advantages based on your particular risk tolerance and financial needs.  If you purchase an annuity and don’t need the monthly income right away, deferring your annuity can allow you to grow your account with interest until you need to start taking payouts.  That money grows tax-deferred which is another benefit of waiting to take your money.  It’s important to look closely at the annuity rates to make sure that your interest will be greater than the rate of inflation.  Inflation makes everything cost more, so you want to grow your money more that the added costs of inflation.  Your individual situation will be the deciding factor as to whether you choose a deferred or immediate annuity.

Written by Rachel Summit

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In “Why consider an annuity?,” Scott Lunsford writes in the Chillicothe Gazette that there is no better time than now to purchase an annuity.  He says that while some annuities can be complicated, a fear of many people, a fixed annuity is straightforward and offers you a multitude of benefits for your retirement years.  Since you insure your house and car with an insurance company, it is a wise decision to insure some of your retirement savings with one as well.

Fixed annuity rates are currently 3.5% and are guaranteed not to go below 2%, something that can’t be matched by many other savings vehicles.  You also are typically allowed to withdraw up to 10% of your money each year without a penalty and with death benefits, you can avoid the hassle of probate court after death.

Fixed annuities are similar to bank CDs, with the exception that they are most often bought through an insurance company rather than a bank.  Annuities are different in that they are tax-deferred and offer more flexibility than bank CDs and other savings vehicles.  They also have guarantees that last over your lifetime and in some cases, your spouse’s lifetime as well.  The author believes that everyone should at least consider purchasing an annuity, especially because of the volatile stock market and very low interest rates that we are currently experiencing.

Written by Rachel Summit

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While the financial climate is likely to continue its up and down pattern in 2012, the safety of annuities will keep their popularity intact this year.  Eric Thomes of Life Health Pro gives five predictions for annuities in 2012 in his article, “Annuity Industry Crystal Ball: 5 Predictions for the Year Ahead.”  First of all, chances are good that interest rates will remain low this year.  Even with low fixed annuity rates, sales of annuities hit records last year.  The industry has done a fantastic job of showing people that making money in retirement isn’t the only thing to focus on; it’s also important to protect the money that you have already made.

Markets are likely to remain volatile and the news media is hyping this up to the maximum.  The best thing you can do is maintain a financial professional that you trust to sort out the headlines and make sound decisions.  A volatile market is not necessarily a bad thing for annuity investors.  The industry needs to focus on the safety of annuities so that its clients don’t panic in down markets or rush into rash transactions when markets are up.  November’s presidential election will keep retirement a big topic in the news.  From Social Security and pensions to tax changes, regardless of the election’s outcome, annuity holders will be safe.

Fixed equity indexed annuities will be more popular than ever in 2012.  The end of 2011 brought new companies into the fixed indexed annuity market, companies who had never previously sold this type of annuity.  A rough financial market has highlighted the benefits of market downside protection and potential for upside gain that are offered by fixed equity indexed annuities.  More sellers means innovation and better choice in the fixed indexed annuity market.  Finally, investors will continue their need for safety and security in retirement.  The guaranteed income that you cannot outlive is an annuity benefit unparalleled in the financial world.  It is up to insurers and advisors to educate their clients about annuity benefits.

Written by Rachel Summit

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In “Pre-owned annuities deliver return with minimal risk,” Elliot Raphaelson of The Chicago Tribune says that secondary market annuities can be a good investment for some people.  Although they aren’t right for everyone, they offer both a safe investment and a high rate of return.  With low annuity rates based on low market interest rates right now, an annuity purchased from a previous owner can pay you up to 6.75%.  Sometimes people who have won an annuity settlement or inherited an annuity want to sell the guaranteed monthly payments for a lump sum of money today.  Intermediaries work with the seller and purchaser to transfer the annuity to the reputable life insurance company or other highly rated annuity carrier.

By taking into account the balance of the payments remaining, the interest rate of the annuity, and the number of payments that remain; a present value of the annuity is determined.  The purchaser pays a lump sum to the original annuity owner and the intermediary gets a fee as well.  The large discount you can get on a secondary market annuity is probably the greatest benefit to purchasing one.  As of December of 2011, MetLife was offering a 6.75% interest rate for a 50 year annuity.  The two disadvantages listed for purchasing this product are the loss of liquidity and the potential that you could lose out if interest rates increase while you are locked into this annuity.  Those are choices made with many annuity purchases and often, investors decide that they are worth the security and advantages of an annuity.

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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