Annuity FYI Blog

Even after being named one of the best annuity service companies, Sun Life Financial will no longer sell new annuities in the U.S.  According to The Boston Globe’s “Annuities a cloud over Sun Life,” Steven Syre says that the Canadian insurance company will also be getting rid of 800 jobs.  Around half of the jobs lost will be in the New England area.  Some employees will remain to offer service to all of the Sun Life clients who already hold annuities and life insurance policies with the company.  They will continue to sell insurance policies as well.

It hasn’t even been two years since Sun Life put out a massive marketing campaign to increase their name recognition in the U.S., so leaving the annuity market is a huge disappointment to the company.  They spent $37.5 million to have their name on the Miami Dolphins football stadium for five years.  But with low interest rates and crazy volatile markets, variable annuities have been a thorn in many insurance companies’ sides recently.  They offer great guarantees to the annuity purchaser, but the guarantees have hurt insurers’ bottom line.

After Sun Life’s stock went down 40%, they made the decision that exiting the annuity business in the U.S. would be in the company’s best interest.  They chose to exit a market that is riskier and more volatile for insurers because it takes the risk away from investors.  Manulife, John Hancock’s parent company, also ran into troubles with its U.S. annuity business.  They have lessened the distribution of the products that helped cause them a $1.3 billion third quarter loss.  Let’s hope that as the markets improve, so too will the annuity choices of these insurers.

Written by Rachel Summit

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I found an Insurance News Net article listing three very basic questions to ask before purchasing an annuity.  In Maureen McLaughlin’s “Guide Clients Down the Right Annuity-Route,” she says that the questions are just as important for advisors as they are for those purchasing the annuity.  It is crucial for clients to trust their annuity advisors and get the most reliable and understandable information from them.  Understanding annuities can be a time-consuming endeavor, but with the right expert advice it doesn’t have to be difficult.

First of all, you’ll want to decide the type of annuity that will work best for you.  Do you want to receive payments right away with an immediate annuity or use a deferred annuity to grow money tax deferred?  You also have the choice of a fixed annuity or one with variable annuity rates.  Make sure that you know why you are purchasing an annuity product in the first place.  It’s important for advisors to explain all of the benefits offered by annuities to clients and potential clients.  You’ve got to have a long term investment and financial plan in mind.

The last question to answer, and the one that frightens many clients, regards the fees associated with annuities.  Be up front with your clients if you are an advisor; if you are the client make sure to ask for all of the fees to be spelled out for you.  In addition to your annuity rates comparison, you’ll want to compare the fees associated with variable annuities, fixed annuities, and immediate annuities.  By knowing any product fees up front, you can better plan your retirement and use your annuity for a lifetime income stream.

Written by Rachel Summit

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There’s a class of mutual funds called “retirement income funds.” They’re also called “income replacement funds” and “managed payout funds.” Since they sound like potential alternatives to payout annuities, I decided to look them over.

When you buy one of these funds, your money usually goes into other mutual funds, whose managers invest it in stocks, bonds or cash equivalents. Like a period certain annuity, the income funds pay a specific monthly income for a specific time.

To evaluate them, I used an online calculator at one fund company website. It allowed me to choose how many years I wanted to receive income and either how much money I wanted to invest or how much income I wanted to receive per month.

If I invested $100,000 and received payments for 15 years, the calculator told me, I’d receive about $700 a month. If I wanted $1,000 a month for 15 years, I’d need to invest $141,000. If all went according to forecasts, my account balance would be zero at the end of the 15-year term.

How does that compare with a 15-year “period certain” annuity? At current rates, an annuity paying $1,000 a month for 15 years would cost about $143,000. Alternately, an annuity costing $100,000 would pay about $700 a month.

Very similar numbers. So how can a person decide between the two? It all depends on whether you want a guarantee. Income replacement funds provide no guarantees. As far as I can tell, buying one isn’t significantly different from arranging to receive regular payments (a “systematic withdrawal plan”) from any mutual fund portfolio. Yes, the calculators that usually come with income replacement funds can help you identify a prudent drawdown rate. And sometimes the fund managers employ sophisticated techniques to smooth the volatility out of  their returns. But they promise nothing.

With the annuity, an insurance company guarantees the payments. If you were to die during the 15-year period, your spouse or children would receive death benefit annuity checks in the original amount until the period ended. Granted, you can’t dip into the principal at will. But if you could, there’d be no guarantee.

Written by Kerry Pechter

For those looking for a new option to guarantee lifetime income, Sun Life Financial has both a new variable annuity and a new living benefit rider.  A company press release introduces the variable annuity, Sun Life Solutions, and the living benefit rider, Sun Income Vision.  Sun Life says that these products will help advisors customize retirement plans in a cost effective way.

There are many investment options from which to choose with the Sun Life Solutions variable annuity.  The Sun Income Vision rider lets you lock in your benefit base and any annual increases in your benefit base without worrying about any decreases in the market.  In addition to your investment choices, there are also choices for death benefits and withdrawal charge options.

Sun Life highlighted some of the top benefits of their variable annuity: earnings grow tax-deferred, there are 20 different money managers from which to choose, expense and mortality charges can be down to 1%, and options for death benefits at many different prices.  Some highlights of the living benefit rider are guaranteed lifetime income, equity participation up to 70%, yearly increases in your income if the underlying account increases, and low annual benefit costs.

Speak with an expert at Annuity FYI if you have any questions about this new variable annuity product.

Written by Rachel Summit

I smacked my forehead in frustration at a story about annuities in last week’s issue (October 15) of Barron’s. One shouldn’t expect Barron’s to know a lot about annuities, because its sweet spot is stocks and bonds. But still.

The author of the article tried to discover if she could buy an annuity online without interference from an insurance salesperson or advisor. “Frankly,” she wrote, “I would be more likely to consider an annuity if I could complete all the steps online, avoiding the possibility of talking to an advisor who sounds like, well, an insurance salesman.” Let’s hit the pause button right there. People generally need assistance when buying an annuity. Why? Because most annuities have an irrevocable aspect, and people should consult knowledgeable (and licensed, because annuities are highly regulated) intermediaries before making irrevocable decisions.

Why is there an irrevocable aspect to annuities? Because the active ingredient in many annuities is the guarantee of a certain return or a specific income, and those guarantees often depend on the illiquidity of the underlying bond investments. In a word, guarantees are insurance. By definition, insurance isn’t something you can easily jump in and out of. The Barron’s  writer continued: “I’m put off by the feeling that I can generate more income investing on my own [than buying an annuity].” To repeat, annuities are not investments. Insurance is always more expensive than investments (unless you happen to count negative returns as an expense) because you are buying protection.

As for her quest to buy an annuity online, the Barron’s writer called several no-load investment companies (Fidelity, Vanguard and TIAA-CREF) and an insurance company (USAA) but was dissatisfied with the annuity services. I wish that she had called annuityfyi.com, where the staff works hard to screen annuities for high quality and help individuals buy appropriate products via Internet and phone.

Written by Kerry Pechter