Annuity FYI Blog

In the article “How to Use Annuities for Retirement Income,” by Philip Moeller, the author offers 15 bits of information about annuities.  The U.S. News & World Report article confirms that the guaranteed lifetime stream of retirement income offered by annuities is more popular than ever in these uncertain economic times.  One benefit of annuities is the tax deferral savings if you don’t take your payments as an immediate annuity.  There is no limit to how much money you can put in an annuity, but there is for other investments like IRAs.  Annuity investors are essentially in a pool together, so they can get higher annuity rates.  While some may live very long lives and put a strain on the insurance companies, others may not.

It is crucial to comparison shop when looking at annuities.  You not only want to compare different annuities and those from competing insurers, but also compare equity linked CDs and other investments.  Be sure to include the safety of annuities to the risk you take with some other investments.  All annuities have fees and service charges attached to them because that is how the insurance companies make money.  Comparing the fees is another crucial step to take in your annuity research process.  This article says that annuities and Social Security are very similar in style.  Social Security is essentially a flexible premium deferred annuity because your payments vary based on your income and you wait to receive monthly payments until a later date, usually after retirement.

Annuities can be purchased through a lump sum payment or a series of payments over time.  Fixed annuities offer a fixed payment over time whereas variable annuities are invested in market subaccounts and can offer the potential for a greater return.  The fixed equity indexed annuity combines the fixed returns with some market upside potential and has become increasingly popular.  Annuities can be very complicated investments and are best purchased with the help of an expert.  Some investors worry that their money will be wasted if they die prematurely.  There is the option available to receive payments for a fixed period of time or even to last throughout your spouse’s lifetime.  With each guarantee you will be charged accordingly, so finding the best annuity for you can be like putting together a puzzle.  You’ll want to work with an expert to get the right options with the right payments and costs for you.

Allianz Life Insurance Co. of North America introduced a new preferred distribution program last week that those left out of the program are unhappy with.  According to Darla Mercado of Investment News in the article “Allianz Preferred perks strike nerve with agents,” agents and marketing groups who are not included in Allianz Preferred are worried that they will lose clients or agents within their groups.  The program gives extra support to top sellers of Allianz’s fixed equity indexed annuity products.  Allianz Preferred offers these top field marketing organizations some special products and more support and in turn, they allow Allianz increased oversight of their organization.  Allianz says that they want to make sure the companies who represent them best are thriving and getting the resources to improve in the marketplace.

The annuity market could see some changes because of Allianz Preferred, since agents and marketing groups could look specifically for FMO’s who are part of this preferred group.  Some critics of the program think that the $75 million of Allianz annuities that FMO’s must sell to be in this preferred group is too high.  Others worry that compliance officers hired by Allianz to look into the materials related to competitors’ annuities may not be in the best interest of the consumer looking to compare annuities.  Allianz is already the top indexed annuity seller with 21% of the market and this move may make it nearly impossible for its top competitors, like American Equity and AVIVA USA, to catch them.  The 25 or so organizations who will be part of this preferred program are excited for all of the benefits, and even for the opportunity to recruit agents whose organizations are not eligible.

The New York Times article “The Annuity Puzzle,” by Richard Thaler, ponders why more people with control over their retirement income do not choose annuities.  The guaranteed lifetime income offered by annuity products seems like a “no-brainer” over other investments where you might run out of money before your death.  But even so, many retirees do not opt for annuities when choosing their retirement vehicles.

A few reasons are suggested for why more people are not purchasing 401k annuities when they retire and transfer their 401k plan money into an investment from which to draw down.  One is that they’re worried an annuity hurts their heirs.  But investors can opt for a death benefit annuity or set aside a portion of their savings for heirs before purchasing their annuity products.  There is also the risk without an annuity that you could run out of money and your heirs would not only inherit nothing, but may have to pay for your care and expenses in your later life.  With an annuity, your money will last as long as you live and your heirs wouldn’t have to worry about that.

Another reason more people may not look to annuity products is that they appear to be complicated and it can be a frightening purchase.  While there are definitely complicated annuities out there, with the help of an expert you can find a product that works for your situation and will ease your financial worries about retirement.  It can also be hard psychologically for people to understand the importance of annuities.  They think it is a gamble and that you have to live to a certain age to make the purchase worthwhile.  Annuities should actually be seen as insurance protecting you should you live past the age where other investments run out.  With a fixed monthly income guaranteed over the rest of your lifetime and in some cases, your spouse’s lifetime, annuity products can also help you better determine when you have enough money to retire.  Providers of annuities may need to get more people to compare annuities and spread more information on the value they bring in financing your retirement.

A few ideas are being tossed around to help Americans guarantee retirement savings including increased use of annuity products, auto-enrollment in 401k plans, and limiting loans from 401k plans.  National Underwriter’s Allison Bell writes about these renewed ideas in “Retirement Savings Ideas: Annuities; Auto-Enrollment; 401(k) Plan Loans.”  Some U.S. Senators, insurers, and the Employee Benefit Research Institute are working to help increase retirement savings and help guarantee that Americans are able to retire someday.  A recent study found that almost three-quarters of baby boomers in the middle income class worry that they will have to delay their retirement and fourteen percent worry that they will never be able to retire.

Some new federal laws are trying to get employers to automatically enroll employees in 401k plans when they are eligible.  Employees would have to go through multiple steps to dis-enroll.  Multiple councils and institutes are advocating the use of deferred and immediate annuities for retirement.  The Institutional Retirement Income Council has a five tiered evaluation approach to help pre- and post-retirees with their income strategies.  Two U.S. Senators are working to protect Americans who feel so cash strapped that they are taking loans from their 401k plans.  They want products that promote asset leakage to be banned and the number of loans taken at once to be limited, among other things.  Compare annuities, auto-enrollment in 401k plans, and 401k loan usage carefully to help plan your retirement.

The management at Inviva Inc. left the life insurance business five years ago because they thought the annuity business at subsidiary Jefferson National Financial Corp. would be more lucrative.  They were right.  According to Business First’s Kevin Eigelbach, sales of variable annuities at Jefferson National have been increasing every year.  His article “Annuity product boosts sales, employment at Jefferson National” says that the ability to hire more workers has been another positive side effect of the decision Inviva made to focus on annuities rather than life insurance.

Chief operating officer David Lau says that Jefferson National is excited about their growth and forecasts sales of $360 million this year.  Their 2010 sales of $200 million were a 54% increase from the sales in 2009.  They expect their annuities to help the company reach sales of $600 million by next year, almost doubling this year’s expectations.  Skyrocketing sales have helped the local Dallas economy as well.  Jefferson National has been consistently hiring for years now and has no plans to slow down anytime soon.  They are helping fuel employment and hiring locally and nationally as well.

The Monument Advisor variable annuity offered by Jefferson National was the first of its kind with a flat insurance fee.  It charges $20 a month and that amount doesn’t change as your annuity value grows.  Compare annuities from other companies and it is difficult to find another product without increasing fees.  Some other benefits to the Monument Advisor include no other insurance charges, no paid sales commission, more investment options than other products, a better potential for tax-deferred growth, and an excellent online investing platform.  Speak with one of our experts if you have any questions about Jefferson National’s Monument Advisor.