Annuity FYI Visitor Blog

“Locking in Future Income” by Leslie Scism of the Wall Street Journal explains both the benefits and drawbacks of variable annuities.  While they help to protect your savings from losses in the stock market, you do need to be aware of both the guarantees and the costs associated with variable annuities.  They are popular because most products offer a guaranteed minimum payment which is paid in a stream over time.  It is important to note that you cannot usually withdraw your money in a lump sum, making variable annuities best for people looking for income like that you’d get from a traditional pension.

Your savings are invested into tax-advantaged funds, whether from 401k annuities transferred into a variable annuity product or from another source.  From there you’ll have an account balance of the basic funds which incorporates both your initial investment and any gains that you have accrued.  You will also have a guaranteed minimum benefit base, which insurers usually re-calculate each year and from which they base your lifetime payments.  While it is hard to find the 10% minimum increases of the past, you can still find 5% or 6% offered for at least 10 years or until your first withdrawal.

The fees associated with variable annuities are usually around 3.5% and can turn some investors off from the products entirely.  It is important to weigh those fees with the benefits though, because sometimes your reward is much more than your costs.  Since the market has extreme highs and lows, many insurers point out that the high increase years more than make up for the fees you are paying and still allow for a significant increase in your base amount.  It is important to speak with a financial adviser about variable annuities, because if you are ready to retire, immediate annuities might be a better product for you.  The Wall Street Journal lists annuityfyi.com as one of the only websites to help investors compare annuity products.

The financial planning program MoneyGuidePro Version 2.2 was released last week, according to Investment News‘ “MoneyGuidePro Version 2.2 now available” by Davis Janowski.  There are many features new to this updated program that can be used by financial advisers who are creating plans for clients and prospective clients.  The program has an internal Roth IRA conversion feature and a Roth IRA conversion calculator that is separate.  PIE Technologies is the company that offers the program.  Their chief executive said that they thought advisers needed the Roth IRA abilities at both of those levels.  The Roth IRA calculators are even more important now that individuals with higher income will finally be allowed to convert their traditional IRA’s or 401k’s to Roth IRA’s.

Another important feature of the new MoneyGuidePro deals with variable annuities.  Advisers can include variable annuities with guaranteed-minimum-withdrawal-benefits for clients that have purchased these.  They have also been included in the Goal Strategy area so that plans with and without variable annuities can be compared.  PlayZone is perhaps the most popular new feature because it allows both clients and advisers to “play around” with the numbers in their plan and see what the different outcomes could be.  Although MoneyGuidePro costs $1,295 annually, most advisers can receive discounted offers through specific broker-dealers.

In The Coloradoan, James Watt stresses the importance of choosing your annuity plans wisely in “Financial planning: Properly chosen annuities offer lifetime benefits.”  While it’s true that there are multiple facets to understand about annuities, unfortunately they are all too often misunderstood products.  When the annuity and the purchaser are matched properly, annuities can provide income over your lifetime.  Variable annuities have changed significantly over the past fifteen years and while they are more complex, they are much more useful and beneficial to the purchaser.

Their 4 more popular features are summarized here.  A guaranteed minimum income benefit offers lifetime income at a guaranteed rate.  With a minimum income withdrawal guarantee, the guaranteed minimum withdrawal benefit lasts for a predetermined fixed time period.  A guaranteed minimum accumulation benefit guarantees that you will receive the amount of your original investment at the very least, at some point in the future.  The advanced live delayed benefit delays the benefits you receive until an older age that is predetermined at purchase.

Annuities are great tools to cover the income gap: the amount of money to cover your needs in retirement versus the amount of money you will have coming in from social security or retirement plans.  401k annuities and other annuity purchases and rollovers can make the income gap nonexistent.  There are many tools available to estimate how long you will live and how much income you will need coming in throughout retirement.  Having a guaranteed income that protects against longevity risk without worrying about S & P 500 declines are the main benefits of an annuity.

According to the Retirement Income Reporter, Vanguard is planning to launch a new variable annuity that features a guaranteed lifetime withdrawal benefit. The firm has filed an application with the Security and Exchange Commission for their approval.

The GLWB rider is expected to have a 1% fee, although exact fees and payout rates are unknown. Vanguard claims that this new annuity will be like its no-load, no surrender-fee variable annuity, except with a lifetime income benefit tacked on.

While this proposal could change significantly before it goes to market, it states that there will be a $25 annual fee if the account value drops below $25,000. As of now, the minimum initial investment will be $5,000.