Annuity FYI Blog

The fixed annuity is an important tool to help you financially in retirement.  In the Leavenworth Times’ “Dollars and Sense: Income riders a way to achieve retirement goals,” Larry Martin discusses the different income rider options available with a fixed annuity.  I previously blogged about his retirement scenario related to a couple needing to save $345,000 and get a 6% return to reach their desired retirement savings.  Deferred fixed annuities are a good option for this couple because income rider additions can get them to their 6% return.  Martin recommends two fixed annuity documents to help people learn all of the basics related to fixed annuities.  The NAIC’s “A Buyer’s Guide to Fixed Deferred Annuities” and NAFA’s “The Need to Insure Retirement with Fixed Deferred and Immediate Annuities” both offer in depth information for those interested in fixed annuities.

Fixed deferred annuities are not only safe, they also allow you an opportunity for growth of your investment.  In addition to a basic fixed rate of return, fixed indexed annuities offer the benefit of being linked to a specific stock market index, giving you the possibility for even greater growth.  Fixed annuity rates are not at their highest right now, but with an income rider, you could get a 6% return.  You don’t just want to look for the insurance company offering the highest return however.  Look for a strong company with a high financial strength rating and compare the details and options then.  Some weak insurance companies offer higher rates, but may not be around to pay you out over your lifetime.  You main annuity account is your accumulation account and any income rider will be a separate account growing at a guaranteed rate.  GLWBs and GLIBs are two examples of income accounts.  The guaranteed rate of an income rider helps provide income over your entire lifetime.

Written by Rachel Summit

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It just got a whole lot easier for clients of Jackson National Life, as well as for their customer contact representatives.  Their Genius Operations Manual helps customer reps answer any possible question about any one of their annuity products, according to Anthony O’Donnell of Insurance & Technology.  In the article, “Jackson National Life’s “Genius” Project Boosts Annuity Service, Reduces Errors,” we learn that the Genius system gives reps real-time annuity information through the use of Thunderhead’s software.

Since December of 2011, service reps have had the software available for fixed annuities.  It should be available for variable annuities in a couple months.  If a producer or customer calls into the center, the reps almost immediately have access to the client’s specific product, the issue age and state, and the resident state.  The Genius system basically creates an individual product reference guide for Jackson’s customer reps to use with their clients.  It had been difficult to avoid errors in the past, as well as time consuming for reps to search for individual information related to each annuity product and client.  The system was less than efficient.

With more than 5,000 plan codes, SEC regulations, and individual state and territory differences, it was close to impossible to give the best information to everyone.  One of Jackson’s biggest problems was quoting annuity rates because of all that went into an individual quote.  It took at least 9,000 hours of content development and 3,700 programming hours to get the Genius system in place, but Jackson believes that it was well worth the cost.  They just won’t disclose what that cost was.  They haven’t yet determined what metrics they’ll use to gauge success, but they’ve seen the elimination of incorrect annuity rate quoting as well as immediate improvements to service.

Written by Rachel Summit

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A.M. Best has put together a special report highlighting the life and annuity industry’s 2011 happenings and forecasting those for 2012.  They released a press release summarizing their findings entitled “A.M. Best Special Report: U.S. Life/Annuity Insurers Shifting Gears in Volatile Economic Environment.  Even with a plethora of large economic challenges in 2011, the life and annuity industry made it through the battle with little consequences and even had some fixed-income portfolio gains.  The industry maintained good regulatory capital and operating earnings.  Careful liquidity and capital management allowed the industry to improve the fundamentals of their balance sheets.

Low interest rates are definitely affecting the industry’s earnings, so they have to adapt.  Annuity rates and others affected by interest rates will most likely remain low through 2014.  Although the rate of growth will be slower, A.M. Best does expect positive earnings to continue.  Those life and annuity companies whose earnings are not as tied to interest rates and equity markets will likely maintain better results that those who are.  Product lines that are changed by the equity markets are increasing the hedging costs and reserve needs at companies.  Insurance companies have taken different approaches to the risk with some closely monitoring more risk and others paring down on risky asset classes.

Some insurance companies have slightly changed their variable annuity products to stay in the market, while a few have left variable annuities behind.  Others are moving away from fixed annuities and group medical and long term care insurance.  Companies who are re-emphasizing whole life insurance are more favorably viewed by A.M. Best.  A new deferred acquisition cost accounting system will impact shareholders’ equity as it’s introduced, but the changes will be manageable.  Overall, A.M. Best seems to believe in the life and annuity industry and their future success, despite difficulties in the market.

Written by Rachel Summit

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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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