Annuity FYI Visitor Blog

In the Investment News article “Eight big changes that will reshape the annuity biz,” Darla Mercado summarizes a report from Jack Marrion of Advantage Compendium Ltd.  Fixed annuities will see their largest sales ever in the next ten years because of the 58 million Americans nearing retirement will be more receptive to the product’s value.  The 1st change we’ll see in the next ten years is a drop off in 1035 exchanges as it becomes more difficult to transfer from one annuity to another.  With the likely passage of Rule 151A classifying annuities as securities, marketing organizations (MOs) will phase out of existence.  The 3rd change will be a takeover by securities regulators ensuring suitability of annuity products.  The MOs that remain will have to have securities connections with broker-dealers or RIAs to stay competitive.

The 5th change that Marrion believes will happen when you compare annuities today and in ten years is that they will be seen much more in pensions as the planners get comfortable with the products.  Next, the way that guaranteed benefits are offered now will be overhauled with new options that are better for investors.  The 7th change is that Wall Street could be a large part of the annuity industry by getting involved through the teaming of investment firms and life insurers.  The final change will likely be a skyrocketing of fixed annuities sales in the next ten years.  As the products and their benefits evolve, Marrion believes that future retirees will be very open to fixed annuities.

According to Darla Mercado of Investment News, insurance companies have new targets in their sight to increase sales of variable annuities.  Mercado’s article “Insurers target new channels to help boost VA sales” talks about the insurance companies’ plans.  At the Insured Retirement Institute’s marketing conference in New York this week, the panel spoke of their need to change direction due to the financial crisis.  Insurers are looking to reach out to different types of potential customers and advisers in previously uncharted territories.

One of the biggest groups of people who could potentially benefit from variable annuities are 401k participants and managed-money programs.  Insurers hope that pre- and post-retirees will make 401k annuity transfers and purchase variable annuities from them.  The purchase of annuities will guarantee a lifetime income stream throughout retirement.  Some new products have also come out of this need to advance with the changing economic climate.  Lincoln Financial is introducing a long-term-care rider with both their fixed and variable annuities.  Updates and changes from insurance companies are meant to help consumers in the long run.  A little competition can breed great ideas.

If we knew exactly how long we were going to live, it wouldn’t be difficult to know how much money we need available in retirement.  Unfortunately life expectancy tables and guesses are the best we can do when trying to determine how long we’ll be around.  Online source theadvertiser posted an article by Georgianna “Shelly” G. Latino entitled “Life length, retirement are connected” with information on retiring effectively.  According to recent studies, children that were born in 2002 are expected to live well into their 70’s, 74.5 for males and 79.9 for females.  Life expectancy numbers increase often because of medical advances and trends in lifestyles and the longer you live, the longer you are expected to live.

So the question lies in how to finance the long future that many of us will enjoy.  Retirement income needs to last for several decades in order to avoid the longevity risk of outliving one’s money.  Immediate annuities are the solution listed in Latino’s article.  By purchasing an immediate lifetime annuity using a one time lump sum payment, a guaranteed income stream will be paid to the investor over the course of their lifetime without being subjected to market risk.  Numerous “riders” are available that can provide you with even more benefits.  To protect against inflation, you can add the option of having an annual increase.  There is also a cash refund option where any remaining principal you did not receive in monthly payments will be refunded to your heirs, were you to die before expected.  An immediate annuity can secure your retirement future.

In The Coloradoan, James Watt stresses the importance of choosing your annuity plans wisely in “Financial planning: Properly chosen annuities offer lifetime benefits.”  While it’s true that there are multiple facets to understand about annuities, unfortunately they are all too often misunderstood products.  When the annuity and the purchaser are matched properly, annuities can provide income over your lifetime.  Variable annuities have changed significantly over the past fifteen years and while they are more complex, they are much more useful and beneficial to the purchaser.

Their 4 more popular features are summarized here.  A guaranteed minimum income benefit offers lifetime income at a guaranteed rate.  With a minimum income withdrawal guarantee, the guaranteed minimum withdrawal benefit lasts for a predetermined fixed time period.  A guaranteed minimum accumulation benefit guarantees that you will receive the amount of your original investment at the very least, at some point in the future.  The advanced live delayed benefit delays the benefits you receive until an older age that is predetermined at purchase.

Annuities are great tools to cover the income gap: the amount of money to cover your needs in retirement versus the amount of money you will have coming in from social security or retirement plans.  401k annuities and other annuity purchases and rollovers can make the income gap nonexistent.  There are many tools available to estimate how long you will live and how much income you will need coming in throughout retirement.  Having a guaranteed income that protects against longevity risk without worrying about S & P 500 declines are the main benefits of an annuity.

In a PR Newswire press release “How to Compare Annuity Features and Choose the Right One,” there is a summary of annuity tips taken from financial blog ChristianPF.com.  Since each consumer has a different situation, it is in your best interest to know the benefits and drawbacks to the different types of annuities.

Often considered the safest type of retirement vehicle by financial advisers, fixed lifetime annuities allow consumers to purchase guaranteed income for life.  With a fixed term annuity, the idea is the same but the time period is fixed at purchase, i.e. 5, 10, 15 years or more.  While it’s difficult to know exactly how long one will live, fixed annuities are also good for consumers who know that their need for income will lessen as they age.

Variable lifetime annuities and variable term annuities have the same time frame principal as the fixed annuities, but base the monthly income payments on the market and the underlying fund that the variable annuity is based upon.  With any annuity purchase, it is important to research the financial adviser that you go through rather than looking for the best deal.

The article mentions a few other options worth looking into.  Cost of Living Adjustments (COLA) attached to an annuity will account for inflation and cost of living increases so that your monthly payments rise over time.  By purchasing a Joint or Survivor Benefit rider, you guarantee that your spouse or another heir will continue receiving your monthly payments.  Since a 401k annuity rollover or IRA transfer are tax free, using that money to purchase an annuity is in your best interest.