Annuity FYI Blog

Some scary statistics came out of ING’s Retirement Research Institute last year.  A whopping 71% of Americans don’t have any kind of formal retirement plan in place.  That’s nearly 3/4 of America that either won’t be able to retire or will have to struggle financially because they didn’t plan ahead.  This is not good news seeing that Americans are living longer than ever and costs are steadily increasing.  This information comes from Financial Planning’s Danielle Reed, in her article “Year-End Reality Check: 71% of Americans Don’t Have a Retirement Plan.”

Of those researched between the ages of 25 and 69, working full-time and earning $40,000 or more per year, 48% of them feel unprepared for retirement.  And that isn’t to say that they don’t have any plans in place.  Seventy-five percent of them are contributing to some type of workplace retirement plan, they are simply worried that it isn’t enough.  This is why many experts want you to compare annuities when planning your retirement.  They are a perfect bridge for the gap between your workplace plan savings and the expenses you will have.

More than 4,000 men and women were surveyed for this study and less than half of them had actually sat down and figured out how much money they will need in retirement.  Not surprisingly, only 28% were working with some type of financial planner to help them ready for retirement.  If more were working with an expert, they surely would have calculated how much they need to live off of in retirement.  By using 401ks, IRAs, pensions, and Social Security in conjunction with annuity products, Americans should be able to finance their retirement well.  We just need to make sure we save enough to use these products and live how we’d like.

Written by Rachel Summit

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Sammons Retirement Solutions is moving forward with a new variable annuity despite many carriers steering clear of variable annuities.  Since interest rates have been low and the stock market volatile, insurers like MetLife and Prudential have lessened their variable annuity business.  Sun Life Financial, out of Canada, actually left the variable annuity business altogether.  These companies worry about hedging their living benefit guarantees with a less than ideal financial market.  But Sammons says that you just have to focus on the other benefits variable annuities have to offer, those related to tax deferral.  This information comes from Darla Mercado’s Investment News article, “Others retreat, but this carrier is charging into the VA business.”

Sammons has been a staple of the fixed annuity market in the past, but is excited to introduce their variable annuity to the industry.  A new unit of Sammons Financial Group, Sammons Retirement Solutions is also the sister company to Midland National Life Insurance Co.  Sammons’ variable annuity will have up to 80 different choices in the investment menu.  They believe that focusing on simplicity and the tax-deferral benefits of variable annuities will make them successful in this new endeavor.  By staying away from the guaranteed living benefits that are stressing out insurers, Sammons is able to keep costs low and choices high.  They have chosen to compare annuities based on their ability to defer taxes throughout the accumulation period.  This switch in focus on the benefits of variable annuities is likely to be a new trend in the marketplace.

Written by Rachel Summit

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In “Understand fixed-indexed annuities,” James L. Watt of The Coloradoan explains that while fixed indexed annuities are complex products, they can offer you unparalleled market protection.  That author notes that money market funds, 5-year CD’s, and both 5- and 10-year U.S. Treasury notes are not even offering returns that can maintain your buying power when they are up.  Fixed indexed annuities are a kind of combination of fixed and variable annuities, offering the best benefits of both products.  They guarantee a minimum interest rate no matter what happens in the markets, but also link with a specific market index in the hopes that you’ll receive an even greater interest rate if markets increase.  While the return is less than that for bonds and less than stock potential, you are also guaranteed to get your principal back because it is protected.

Your fixed indexed annuity return is typically based on three factors.  The participation rate is the percentage of any gain that you will get, the best are around 90%.  There also may be a spread or asset fee that reduces your percentage.  If your spread were 3.5, you would get a 6.5% gain with a 10% market gain.  There are also interest rate caps with most fixed indexed annuities.  In 2009, the S&P 500 Index increased by 23.5%, but if your cap was anything like the norm of 7-10%, you would have received the 7-10% interest of your cap.  But if you take into account the stock market performance from 2000 to 2009, the S&P 500 decreased by 24%.  This caused huge losses in stocks and many other investments; compare annuities and  most lost nothing.  If you had a fixed indexed annuity with a 3% guaranteed interest rate and 90% participation rate which is likely, you would have seen a 2.7% gain while everyone else was losing.  In order to receive the guarantees of fixed indexed annuities, you sacrifice huge gains for smaller ones but don’t have to worry about any losses.

Written by Rachel Summit

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As an alternative to long term care insurance, LTC annuities are becoming increasingly popular.  This information comes from the AdvisorOne article “An Annuity Alternative to LTC Insurance,” by Robert Bloink and William H. Byrnes.  LTC insurance helps to pay for long term care should you need it, but it can be difficult for some people to qualify for and is a tough sell since there is a good chance that you’ll never use it.  LTC annuities, however, function like a typical deferred annuity which can last a certain number of years or over your entire lifetime.  They also offer a payout usually 200-300% higher than the annuity’s face value.  If you compare annuities with LTC insurance, they seem to be a better alternative for many people now.

Due to medical condition or age, there are many denials for those applying for LTC insurance.  Requirements for LTC annuities are not as strict, allowing more people to use them as a form of protection against the high costs of long term care.  With LTC insurance, you may never need a payment from the policy and you will not be able to pass the money onto your heirs.  But LTC annuities pass death benefits onto your beneficiaries in an amount based upon whether or not you used any money for LTC care.  While the payout for an LTC annuity can be much less than that for a traditional annuity, LTC annuities have significant tax advantages.  There is a newer option for a joint LTC annuity that is a good idea for couples to look into as well.

Written by Rachel Summit

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In a rebuttal of an anti-annuity article in the Huffington Post, Steve Vernon of Money Watch says that the author drew sweeping conclusions without fully researching annuities.  Vernon’s article, “Huffington Post’s Slam on Annuities Is Uninformed and Way Off Base,” says that while some annuities are not great products, that surely isn’t reason to conclude that all annuities are not.  He says that immediate annuities can be an important part of many retirees’ portfolios.  The monthly income from immediate annuities pays you for the rest of your life and doesn’t base your payments on any economic conditions.

Vernon also says that the Huffington Post is misinformed about the government’s interest in offering annuities to 401k plan holders.  He is disturbed that they call annuities toxic and say the government is doing a disservice to Americans by pushing what they call a “retirement rip-off”.  In fact, the government has sought feedback from citizens and companies alike in their discussion of annuities and the fiduciaries making 401k annuity decisions have no conflict of interest as the Huffington Post suggests.  Immediate annuities, both those used with 401k plans and those not, have been shown to give the most retirement income in comparison to other sources.  In this rebuttal of a poorly researched article, the author simply says to do your research, compare annuities, and get the facts before bashing a product.

Written by Rachel Summit