Annuity FYI Blog

In “Why consider an annuity?,” Scott Lunsford writes in the Chillicothe Gazette that there is no better time than now to purchase an annuity.  He says that while some annuities can be complicated, a fear of many people, a fixed annuity is straightforward and offers you a multitude of benefits for your retirement years.  Since you insure your house and car with an insurance company, it is a wise decision to insure some of your retirement savings with one as well.

Fixed annuity rates are currently 3.5% and are guaranteed not to go below 2%, something that can’t be matched by many other savings vehicles.  You also are typically allowed to withdraw up to 10% of your money each year without a penalty and with death benefits, you can avoid the hassle of probate court after death.

Fixed annuities are similar to bank CDs, with the exception that they are most often bought through an insurance company rather than a bank.  Annuities are different in that they are tax-deferred and offer more flexibility than bank CDs and other savings vehicles.  They also have guarantees that last over your lifetime and in some cases, your spouse’s lifetime as well.  The author believes that everyone should at least consider purchasing an annuity, especially because of the volatile stock market and very low interest rates that we are currently experiencing.

Written by Rachel Summit

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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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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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In “Outlook 2012: Annuities-Industry at Crossroads, With Weatherford, Greenwald, Cortazzo,” John Sullivan of AdvisorOne says that annuities should do well next year despite some potential hurdles.  With two major annuity carriers departing the market recently, you would think that would forecast a big problem for annuities overall.  But that is just a product of some horrible market conditions and the need for annuities now is greater than ever.  Lifetime income guarantees are more important now than ever before as Baby Boomers retire and markets remain less than stable.  As the market makes it harder for insurers to hedge those guarantees and run their companies, the annuity market will likely change to try and keep up.

While there is a greater need for annuity products than there was in 2007, there are fewer carriers to meet that need.  Low interest rates and a volatile market are a double whammy for insurers, according to MACRO Consulting Group’s Mark Cortazzo.  He thinks that advisors should look at products with short surrender periods and liquidity.  He says that his company looks to match annuities with people who need income right away, want security, and may be making no money in a money market.  So even with low immediate annuity rates, there are many consumers who still stand to benefit from the use of annuities in their portfolios.

Matt Greenwald, CEO and president of an annuity research firm, doesn’t believe that the companies leaving the annuities market is quite that significant.  He stresses that factors beyond the annuities market led to the exit of these Canadian insurers and thinks that the annuity industry will continue to do well despite its challenges.  Cathy Weatherford of the IRI says that government recommendations for using 401k annuities and other annuity products so that some retirement income is guaranteed to Americans will also help to strengthen the industry in 2012.  So while the financial markets are making things difficult for the annuity industry, overall it should remain strong and overcome its challenges.

Written by Rachel Summit

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