Annuity FYI Blog

There are many things to consider when you are preparing for retirement, but most couples disagree during the decision making process.  According to the Minuteman News Center’s Joe Mont, a “Study finds couples (are) at odds over retirement.”  Fidelity Investments performed a study of 648 married couples between the ages of 46-75 regarding retirement issues and products like annuities.  Among couples, 33% did not agree on the type of lifestyle they would lead in retirement, so this is the first issue couples must overcome.  They cannot make a plan for retirement without knowing how they will spend their time, hence how much money they will need.

Well over half of the couples surveyed, 62%, did not agree on the age at which they would retire.  How long you plan you plan to work is a big determining factor in your lifestyle and finances in retirement, so couples need to get on the same page with that decision.  58% of couples said their advice to newlyweds would be to make all of their decisions together regarding finances.  This includes everything from variable annuity reviews to how much to spend on a mortgage.  Figuring out whether you’ll need or want to work in retirement is something that 47% of recipients didn’t agree upon.  Only 58% said that they are working with a financial professional to reach their retirement goals.  Ideally, everyone should look for help to make sure they will not outlive their savings.

Out of those surveyed, 63% have a detailed retirement plan to ensure that they will not be subject to that longevity risk.  While you should review your retirement portfolio yearly, 57% of the couples did not agree on how often these reviews should take place.  Inflation was a concern for 42% of respondents; maybe the others have already planned for that with inflation adjusted annuities.  19% worried that their social security payments would be reduced during retirement.  The best immediate annuities can help guarantee a lifetime of income should social security be reduced or not enough to cover your expenses.  Unexpected health care costs were only a concern for 31% of couples.  Out of pocket costs could exceed $230,000 without employer sponsored health insurance, so make sure that you have an insurance plan in place long before retirement.

The best immediate annuities can defend your financial future against longevity risk, or the possibility of outliving your money.  According to Insurance News Net’s article “Insure Against Longevity Risk with Immediate Annuities,” Mark Miller says that single premium immediate annuities can really secure your retirement.  They only make up about 2% of retiree income currently, but are expected to begin a comeback after flatlining during the economic crisis that started in 2008.  After making a one time payment to an insurance company, investors receive monthly income over the course of their lifetime with the best immediate annuities.  Sales were $7.9 billion in 2008, but have not seen significant growth since that time.

It looks like the SPIA is gaining popularity again though.  With an average buyer age of 73 and an average purchase price of $107,000, annuities help retirees generate income where people used to have pensions and social security to guarantee them payments.  Third party distribution channels are being used more by insurance companies to grow their immediate annuity business.  New York Life saw an increase of 45% in the first quarter and Fidelity, who offers New York Life annuities among others, saw a 25% increase from the fourth quarter of 2010 to the first quarter of this year.

The first step to purchasing the best immediate annuities is to figure out your monthly living expenses in retirement and deduct any social security or pension income you might have.  The gap between your monthly income and expenses will determine the monthly income you need from an annuity.  No one suggests using all of your savings to buy an annuity, but purchase one that will give you the monthly income you need to cover your basic expenses.  Some financial advisors worry that an annuity rates comparison will not give you as high of a return as some other investments and have some other concerns about annuities.  But with some research and more information from the insurance industry, they’ll see that the best immediate annuities can cover their clients against longevity risk.

Despite the work of the government and many insurers, the use of annuity products in retirement plans is not as common as it should be.  Daisy Maxey’s Market Watch article, “Annuities in retirement plans remain rare,” lists some of the options available to investors.  Many retirement plan administrators don’t think that the appetite is big for annuities, but BlackRock Inc. says that their research has shown increased interest from plan participants.

Prudential Financial offers IncomeFlex for defined contribution retirement plans.  The variable annuity was revamped in 2009 to meet changing demands from plan participants.  Investors receive a guaranteed lifetime payout of at least 5% starting at age 65, for a 1% yearly fee.  There are 7,000 different retirement plans offering Prudential’s product and over $500 million invested, an increase from last year of $200 million.  Fidelity has a program to help retirement plan investors create portfolios by analyzing their individual situation.  Some investors worry that 5 year fixed annuity and other annuity rates are fairly low now, but Fidelity can help investors understand the value these annuity products will bring them in retirement.

The U.S. Department of Labor has been looking into multiple regulations regarding annuity products and their use in 401k annuity plans.  Some retirement plan sponsors seek more regulation before introducing or expanding their 401k annuity offerings.  BlackRock Inc. and MetLife Inc. are working together on the LifePath Retirement Income Fund annuity, but would like more clarification from the government on their fiduciary responsibility offering 401k annuity products.  While annuity products are available for purchase by retirement plan participants, the industry is still working on making them more readily available to ensure guaranteed retirement income for investors.

According to a recent survey, investors are quite uncertain with the retirement issues surrounding them and could use more help from advisors.  Danielle Andrus of Advisor One says that many people are not happy with the support offered from their employer’s retirement plan in her article “Unsatisfied and Uncertain–Investors Need Advisors’ Help: Retirement Report Roundup.”  Cogent Research’s study of investors found that more than half were unhappy with their current situation and need advisors’ help transferring 401k annuities and other retirement savings plans.  Those who are happy with their current employer plans are three times more likely to roll their money over with the same company holding their 401k or 403b plans.  Investors were most satisfied with Fidelity, Wells Fargo, Vanguard, Merrill Lynch, and Charles Schwab.

LIMRA research has found that half of pre-retirees have not even considered the possibility of outliving their income.  Fewer than one third of those set to retire in the next three years actually have a written retirement plan in place.  Advisors will be able to help pre-retirees and retirees make decisions to carry their savings throughout their lifetime.  Annuities with guaranteed living benefits have been increasing steadily and were up 8% in 2010.  With $81 billion in sales of annuities with guaranteed living benefits in 2010, the total assets of variable annuities carrying that rider went to $521 billion during the fourth quarter of last year.  New annuities with these riders were introduced in 2010 by Hartford, Principle, and Protective.  Our experts can help you with 401k annuities and guaranteed living benefit riders that will make your money last over your lifetime.

Many retirees right now are spending their money too quickly, according to The Wall Street Journal’s “Will Your Savings Run Out in Retirement?”  Anne Tergesen’s article offers suggestions to find out how much money you can spend each year without depleting your nest egg too soon.  Fidelity Investments touts annuity products as a good way to bridge the gap between social security, 401k’s and other retirement income.  Since many retirees are wary of hiring a financial advisor even though they are concerned about their retirement finances, some top companies are offering free or low-cost services to help you get your finances in order.

One of the most accessible services is Fidelity’s Income Strategy Evaluator.  You can find information on their website, at any branch, or through a toll-free phone number.  They offer advice on avoiding the longevity risk by estimating how much money you can spend each year without depleting your savings.  Whether you need information on a 401k annuity transfer or the best immediate annuities to carry your savings through retirement, Fidelity Investments has someone to assist you.  Charles Schwab Corp. offers their clients a Retirement Planning Consultation.  Companies like T. Rowe Price, Financial Engines Inc., and Morningstar, Inc. all have information to offer 401k and other retirement plan members.  There is advice out there for everyone.