Annuity FYI Blog

There is a good chance that you are one of the many people who underestimate the strain inflation is likely to place on your finances in the future.  It is important to account for inflation in one way or another so that your money doesn’t run out faster than you planned.  Steve Burns of the Daily Breeze was asked about inflation and gave his answers in “Keeping up with inflation — stocks vs. bonds.”  Burns recently published an article about evaluating Social Security benefits through the use of an immediate annuity calculator.  The article said that the cost of an inflation-adjusted annuity would be about 50% more than the cost of purchasing a fixed annuity not adjusted for inflation.  A reader wrote in to ask Burns how he came up with this percentage and if he took age into consideration.

He looked at two different companies offering inflation-adjusted annuities.  While the 50% figure seems high to those reading it, he believes that many of us underestimate the real effects that inflation will have.  A 55-year old man using $100,000 to buy a fixed annuity with lifetime income would get a monthly payment of $420.  Compare that to an inflation-adjusted annuity where your payments would start at $268 per month.  That equals out to a 57% increase between the two types of annuities.  That number goes down to 39% if you wait ten years and purchase the annuity at age 65.  While there is a steep increase in the cost of an inflation-adjusted annuity, it is important to to account for inflation in some of your investments, whether it be your annuities or not.

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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The National Association for Fixed Annuities (NAFA) recently had their summit to forecast what is ahead in 2012.  This information comes from Insurance News Net’s article “2012: Industry Views from the 2011 NAFA Summit,” by Rob Billingham.  He gives a summary of six expert opinions in the industry.

Altisure Group’s Niju Viswani believes that annuities will stay strong in 2012, but they will need continuing innovation to keep up with the switch from being accumulation focused to insurance focused.  You will see more death benefit annuity products and annuities with GLWBs.  Also, insurers will have to get creative to deal with the 10/10 regulation, annuities cannot have a surrender charge greater than 10% and it cannot last longer than 10 years.

Fidelity’s Cindy McGarity thinks that 2012 will see a large focus on regulation and suitability requirements.  She believes that companies will be focused on training and carrier consolidation and says that indexed annuities should continue a steady increase.  Brian Mann of Partners Advantage says you need to move past the low interest rates and volatile markets and focus on the guaranteed lifetime income that retirees seek.  Fixed equity indexed annuities with GLWBs offer the peace of mind that many retirees want; they aren’t as worried about the interest rates.

Consultant Harry Stout says that technological advancements and strong capital management will be important focuses for insurers in 2012.  He points out that many variable annuity carriers have started selling indexed annuities as the products have developed to include death benefits and GLWBs.  Mary Ann Lacey of Underwriters Marketing Service says that while she sees an increase in annuity sales, it will be for those who adapt to changing market conditions like tying annuities to long term care insurance.  Asset Marketing Systems’ Joe Anzelone sees increased fixed annuity sales and challenges related to increased regulation.  The experts agree on most of the 2012 annuity forecast.

Written by Rachel Summit

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There is no question that Dave Ramsey has some great financial advice and has helped countless people live debt free and financially secure lives.  But his view on annuities is too far-fetched; just because annuities aren’t best for some people he assumes they aren’t good for anyone.  Annuity Think Tank published a great rebuttal to Dave Ramsey’s sweeping generalization of fixed and fixed equity indexed annuities.  Dave Ramsey says that he doesn’t have any annuities and because of this, no one should buy annuities.  Every reputable annuity company and insurer out there is quick to say that annuities are not the best product for everyone, but they are a great product for many people.

Ramsey says that you simply should never buy a fixed annuity.  Annuity Think Tank gave a stellar example of two investors who had $100,000 to invest from 2000 through today.  The investor who had their money in an S & P 500 index from October 2000 through October of this year would have $90,000 right now.  That scenario doesn’t sound very good.  But the investor who bought a 10-year fixed annuity in 2000, with 7% guarantees which were the norm, would have $196,000 right now.  That sounds a lot better to me.  While you may not get the highest returns in a really up market with annuities, you are protected from losing money in a down market and I think that is worth a lot.

In regards to fixed equity indexed annuities, Ramsey says that no one should purchase them and those who want to invest in an index should invest directly in that index.  That argument was already refuted with the above example of investors who would have $90,000 or $196,000 for their invested $100,000 twelve years later.  We agree that annuities are not the best product for every single person.  But we strongly disagree with Dave Ramsey, who says they are not the right product for anyone at all.  We have to agree with Annuity Think Tank on this one.

Written by Rachel Summit

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The Insured Retirement Institute found that variable annuities are as popular as ever, reaching record levels of sales in the 3rd quarter of this year.  Net variable annuity sales of $8.8 billion had not been reached since the 3rd quarter of 2007 saw $8.9 billion in sales.  With this quarter’s $39 billion in total variable annuity sales, the industry is on track to reach $150 billion in annuity sales for the year.  This information comes from Advisor One’s Danielle Andrus, in her article “Variable Annuity Sales Highest Since Q3 2007.”  New investors are flocking to the guarantees and lifetime income of variable annuities and other annuity products.  Cathy Weatherford, President and CEO of the IRI, said that the industry has showed its strength and growth potential with the forecasted $150 billion in sales for 2011.

Quarter to quarter sales were down 4%, but annuity sales increased 6% from this quarter last year.  There were significantly fewer changes to benefit options in the 3rd quarter of this year, both compared with the 2nd quarter and compared with the 3rd quarter of last year.  The good thing for clients is that the benefits being changed are all very generous, as they have been in the last few years.  The biggest changes are with new share classes and GMWB riders that offer lifetime benefits.  Fixed annuity sales have been rather flat this year, at $58.3 billion to date.  Immediate annuity rates and many other factors go into the overall sales of annuity products, but the safety and guarantees of annuities are keeping them popular right now.

Written by Rachel Summit

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