Annuity FYI Blog

While the title of Robert Powell’s MarketWatch article indicates that variable annuities with GLWB’s aren’t good, it’s a bit misleading with the honest information presented in the article.  In “Variable-annuity guarantees disappoint over time,” Powell basically says that variable annuities are not right for everyone and they aren’t always a good fit, something that Annuity FYI always tries to portray.  While they aren’t everyone’s best investment, they are good for many people and for different reasons.

The main downside listed in the article is the fact that variable annuities with GLWB’s are worth less in the future after accounting for inflation.  Most investments are.  The article fails to mention the fact that you can purchase annuities that get adjusted for inflation and while they cost more, if inflation is one of your main concerns, they are worthwhile.  The author says that variable annuities are not right for people who can cover their living expenses through Social Security and pensions.  We agree wholeheartedly with that statement.  Variable annuities, and other annuities for that matter, are meant to bridge the gap between your living expenses and the money you will have coming in from those sources.  Most people don’t have traditional pensions anymore and Social Security is rarely enough off which to live, so that is where the need for annuity products comes into play.

We appreciate the fact that the author says variable annuities are right for some people, especially those without traditional pensions and those who are risk-averse.  Annuities with GLWBs have the benefit of a minimum income floor with the potential for market upside.  Without specific inflation protection, the author is right, your money will be worth less in the future.  That holds true for any investment without inflation protection.  While the title of Powell’s article makes it seem like he is saying the guarantees aren’t worthwhile, he is really saying to make sure you consider inflation when taking those guarantees into account.  And if the protection of a GLWB is what helps you relax about your future, variable annuities just might be the product for you.

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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For those hoping for a variable annuity that will not reduce death benefits when a lifetime income option is used, The Hartford’s annuity enhancement is for you.  According to Market Watch’s “The Hartford Enhances Its Variable Annuity To Help Consumers Achieve Both ‘Living and Giving’ Goals,” this variable annuity upgrade allows you to leave a legacy to charity or to heirs.  The variable annuity products are in Hartford’s Personal Retirement Manager (PRM) line of products.  When doing variable annuity reviews, it has been difficult in the past to provide yourself with lifetime income and make sure you have something to leave behind without one taking away from the other.  One of Hartford’s VP’s says that their PRM variable annuities will be able to provide you with both.

When opting for Hartford’s Future6 Guaranteed Minimum Withdrawal Benefit, you can also choose to add the Future6 Death Benefit.  The Death Benefit lets you take income withdrawals without reducing the death benefits at all.  When you die, the death benefits paid out will be the higher number of the premiums invested or the contract value when your income payments began.  This is all based on the fact that you haven’t met any predetermined limits.  Along with these enhancements, some of the costs associated with their PRM variable annuities are also going down.  Hartford’s man in charge of global annuities says that they are just demonstrating their longstanding commitment to the annuity marketplace.  They are confident that annuities meet America’s growing need for retirement income and savings.

Written by Rachel Summit

Follow Rachel Summit on Twitter http://twitter.com/#!/financemama

Nationwide Financial’s IncomeInsight variable annuity was built for advisors looking to use guaranteed minimum withdrawal benefits with their variable annuities.  A company press release on Insurance News Net entitled “IncomeInsight Helping Advisors Strengthen Retirement Income Portfolios” gives more information on Nationwide’s variable annuities.  Confidence in financial security during retirement is at its lowest level in over two decades, and Nationwide believes that they have the products to help advisors make their clients more financially secure into the future.  Variable annuities with GMWBs give the potential for a larger increase in retirement income and decrease income risk at the same time.  Some advisors also sell fixed equity indexed annuities because they have similar double benefits of the potential for increase with some risk protection as well.

At Nationwide, sales of variable annuities increased 32% from 2009 to 2010, due in part to increasing options of variable annuities with GMWBs.  They have an online tool available for advisors to interact with that helps the advisors determine if a variable annuity with a GMWB like Nationwide’s IncomeInsight will work for their clients’ retirement portfolios.  If it is determined that the products will work for a particular client, the online tool gives an amount that it recommends be invested as well as an asset allocation strategy.  The tool could compare equity linked CDs with variable annuities and other investments to see what might work best for each advisor’s individual clients.  While a GMWB carries a fee when added to variable annuities, the guarantees and risk protection that come with it are worthwhile for many investors.

If you are wondering when you will have to take your automatic annuity withdrawals and how much you will have to take, Claudia Buck of the Kansas City Star asked an expert about annuity requirements.  In the article “Check requirements before taking annuity withdrawal,” an investor asks about his withdrawal requirements at age 70 1/2.  He turned 70 1/2 last November and was under the impression that the annuity company would send a notice about his required minimum withdrawal, including the amount he is required to withdraw.  Since a penalty for not making the required minimum withdrawal on time could equal half of the withdrawal amount, it is crucial to make your annuity withdrawals on time.

The expert in the article recommends contacting the annuity company who carries the annuity in question.  When you compare annuities, some are not subject to Required Minimum Distributions so this rule may not even apply to your annuity.  For a tax-qualified annuity, have your annuity company help you determine the amount of your required minimum distribution.  The IRS does not make you take your first distribution until April 1, so as long as this particular investor takes the first distribution by then, they will cover last year’s requirement.  They will have to take a second distribution by December 31 of this year to cover 2011′s requirement.  Since the penalty for not taking required minimum distributions is so high, be sure to contact your annuity company if you haven’t received notice about your withdrawal.