Annuity FYI Blog

Pacific Life has a way to increase your retirement income with their fixed indexed annuity, even if the markets don’t increase in your favor.  Their Pacific Index Choice deferred fixed indexed annuity has been popular lately as those nearing or in retirement seek to protect their savings while hoping for growth in the markets.  But in the event that the markets don’t increase, while your principal will still be safe, there is a new option available that still allows you to increase your retirement income.

The Enhanced Lifetime Income Benefit gives you the option to grow your income, regardless of what happens in the marketplace.  Your income base will increase by 8% every year for ten years if you put off taking your withdrawals for an extended time.  This can add up to a significant amount of money, especially for people who haven’t earned interest on their annuity due to a declining financial index.

The company press release gives an example of someone who purchases a $100,000 annuity with the Enhanced Lifetime Income Benefit.  By waiting ten years before taking withdrawals, the 8% increase would give this person a $180,000 income base instead of the $100,000.  Monthly payments vary based on the other options associated with the annuity, such as whether it is a lifetime income annuity or a death benefit annuity, but you could receive up to 7% annually from this fixed indexed annuity.

Written by Rachel Summit

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According to “Retiring in a positive tax climate is only half the battle,” written by Christopher Scalese for The Times-Tribune, fixed and fixed indexed annuities could be great retirement vehicles for Pennsylvania residents.  They are lucky to live in a state with favorable tax codes for retirees, but Pennsylvania residents still have to find a way to maximize their retirement income.  In Pennsylvania, they have a low sales tax, Social Security benefits are not taxed on the state level, and pensions are only partially taxed.

These tax benefits are a great start, but residents still need to make the most of their retirement savings and annuity products are a good way for many people to do that.  Interest rates are very low on bank CD’s right now and although annuity rates are lower than they have been in the past, fixed annuity rates are higher than those of CD’s because they are offered by insurance companies rather than banks.  Fixed annuities are a good way to earn interest tax-deferred and keep your money safe from volatile markets.

If you are looking for some market exposure, fixed indexed annuities give you that, but they still protect your principal from any losses.  People who choose annuities are typically looking for a safe way to grow their money and ensure that it lasts through retirement.  Annuities also offer tax savings that can add to the benefits already established for Pennsylvania residents.  Every safe investment has terms that you should look into and annuities are no different.  It’s best to speak with an expert and make sure the product is right for you.

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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According to John Sullivan of Advisor One, there will be 82,000 more advisors selling annuities from Lincoln Financial Group because of their partnership with Primerica.  In the article, “Primerica Reps to Distribute Lincoln Financial Indexed Annuities,” it says that there will be two phases to completing the new distributions.  Primerica employs the biggest number of licensed annuity sellers in the United States, so the fact that they will now be selling Lincoln Financial’s fixed indexed annuities is a big boost to the company.  A smaller group of Primerica reps will start selling Lincoln’s New Directions and OptiChoice annuities now.  By early 2012, the second phase will include all of Primerica’s reps selling on a national level.

Lincoln Financial has put a team in place to support their relationship with Primerica, headed by John Chidwick.  He’ll be the national sales manager in charge of all back office support activities for Primerica.  Both companies are looking to offer their clients retirement products that offer a potential for gains along with protection against down markets.  Primerica’s focus on ‘Main Street’ clients will allow Lincoln Financial to expand their position in the middle market.  Primerica’s president is excited to add a quality product for his reps to take to their clients when planning their retirement.

Written by Rachel Summit

Sophisticated investors sometimes use “collar” strategies to protect their investments. When someone has a collar around a stock, for instance, he or she obtains the right to sell it at a certain price (by buying a “protective put”) and gives someone else the right to buy it at a certain price (by selling a “covered call”). The investor is protected against loss and, until the stock price rises, earns revenue from the call.

A relatively new variable annuity from AXA-Equitable was described to me as employing a collar strategy. The product, which resembles a fixed indexed annuity more than a variable annuity, is called Structured Capital Strategies ADV. It’s not widely distributed right now, but if successful it could lead to similar products from other insurers.

When you buy an SCS contract, you invest your money for one, three or five years in an account whose performance is linked to the performance of either the S&P 500 Price Return Index, the Russell 2000 Price Return Index, the MSC EAFE Price Return Index, a gold price index, an oil price index, or some blend of those.

What makes it a “collar” strategy? SCS limits the amount you can lose while capping the amount you can gain. For instance, if you bought a one-year contract and selected the S&P 500 Price Index as your investment option, you could gain up to 10% over the year (but no more) if the index went up. At the same time, you would be protected against up to 10% in losses during the year. If the S&P 500 Price Index lost 8%, your account would lose nothing. If the index lost 14%, you would lose the difference between 10% and 14%, or 4%.

Bullish investors probably won’t like the 10% ceiling on gains. And bearish investors might object that there’s no clear floor to their possible losses. But this product isn’t for pure bulls or pure bears. It’s intended to give risk-averse people an alternative to staying “on the sidelines” and not investing at all.

Written by Kerry Pechter