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.

FINRA has partnered with the United Way to spread financial education, according to FINRA’s news release “FINRA Investor Education Foundation and United Way Worldwide Announce Nearly $1.5 Million in Grants to Support Grassroots Financial Education Projects.”  Twelve United Way branches and community groups received the grants to help promote the FINRA Foundation and United Way’s new program, Financial Education in Your Community.  FINRA is working hard to help lower-income families become financially stable.  Through these education programs, someone who doesn’t even know what an annuity is may realize that the product is best for protecting their financial future.

Community groups have the ability to reach large numbers of people and relay information that can help them without bias.  During this tough economic time, these grants were given in areas hardest hit financially to help people become stable and look forward to their future.  Free educational programs will help working families and individuals on the road to financial stability.  They may learn about the best annuity rates to protect their retirement or simply how to balance their checkbook.  Community needs are across the financial spectrum.  These twelve grants were given to seven United Way branches located in Texas, Nebraska, Wisconsin, Pennsylvania, Connecticut, and New York.  The community groups receiving the other five grants are in Georgia, Arizona, South Dakota, and Tennessee.  FINRA believes that their help in financially educating the communities will make Americans self-sufficient and in charge of their futures.

Many investors worry about inflation when they purchase an annuity.  In exchange for a lump sum payment, annuities offer you a lifetime of guaranteed income with a fixed monthly payment.  In the AnnuityRates.org article “Should I choose an Inflation-Proof Annuity?”, the topic of purchasing an annuity that adjusts with inflation is discussed.  Buying an inflation-proof annuity links your annuity to the RPI (retail price index) so that annual rises in inflation will be matched by annual rises in your annuity payments.  An inflation-proof annuity is not the only way to protect yourself from inflation with annuity products.  You can have built-in increases with standard annuities, they just don’t have the guarantee to match the inflation percentage.

Some of the main advantages and disadvantages to inflation-proof annuities follow.  You will receive guaranteed income over your lifetime and your purchasing power will be protected against the rising prices of inflation.  You will be protected in the case of a drastic increase in inflation and the cost of basic goods and services.  On the downside, your initial income would be lower than that of a traditional variable or fixed annuity.  Your rates will also be based on a forecast of what the future inflation will be since no one knows for sure.  If the inflation rate actually went down to 0%, your income would unfortunately decrease.  There are riders to protect against deflation or no inflation, but those would also decrease your starting income.  Take these variables and use them to determine the best annuity for you and your family to be protected in the future.

While American Olympic medalists are admired and popular after their wins, in some other countries an Olympic gold medal could bring immediate annuities.  According to “Continued success expected for gold-medal winner Kim Yu-Na” in The Hankyoreh, South Korea’s Kim Yu-Na will increase her wealth with her gold medal win in women’s figure skating.  Her final score of 228.56 was not only the highest ever recorded in the event, it also beat her Japanese rival Asada Mao by over 20 points.  Kim’s win gave South Korea their first ever gold medal in the sport and is expected to make her money from endorsements and the annuities her country will provide.

The gold medalist will receive a payment of approximately $52,000 for winning the competition.  The annuity score she had of 24 will now increase to 114, making her monthly annuity payment go up to $862.  Her previous annuity payment was based on a win at the World Figure Skating Championships and a couple of third place finishes.  Some countries offer these immediate annuities to their top athletes as motivation to keep them working hard for the country and to keep them in the press.  Kim Yu-Na is expected to receive a lot of endorsement deals from her gold medal win as well.  The question remains whether she will train for the Sochi, Russia Olympics in 2014 or turn professional and tour with other “retired” figure skating greats.

In “Sidestepping Skepticism, Prudential Scores with Variable Annuities,” Matt Ackerman of Bank Investment Consultant describes how consumers’ opinions of variable annuities are changing.  While many people thought variable annuities were “too expensive or too complicated”, they seem to realize the great potential of these annuity products now.  Since retirement savings have gone down by 40% over the last year and a half, consumers are warming up to this product with its guaranteed income, protection against the market downside, and the ability to reap the benefits of an upswing in the markets.

Prudential Financial’s U.S. annuity business is very strong.  They saw a 53.8% increase in annuity sales last year, with fourth quarter annuity sales increasing 71.4% from the year before.  Their growth in the bank channel has been very substantial as well.  After adding fifteen new banks to their distribution channel last year, their bank sales of variable annuities increased by 152%.  Bank clients typically like to purchase fixed annuities, CDs, and other products that they deem “safer.”  Since the returns in those products haven’t been quite as successful for their retirement income savings, variable annuities are garnering more interest.  Prudential is sticking with this product that they believe in by introducing new products and options, and always being an innovator.