Annuity FYI Blog

The Insured Retirement Institute, or IRI, has an 11-question quiz on their website that tests retirement financing knowledge.  Julie Jason published these questions in The News-Times in her article “A Quiz to Fine-Tune Your Retirement Knowledge.”  The IRI is focused on educating people about annuities through their nonprofit trade organization.  The facts from the quiz are summarized below.

While 4% of the U.S. population was over the age of 65 in 1990, by 2050 20% of the population will be over age 65.  Proving how strong the impact of inflation is, a loaf of white bread went from costing 20 cents in 1960 to $1.18 in 2000.  Each year that you remain living, you increase the chances that you’ll live an even longer life.  Seventy-percent of the people who are at least 65 years old today will reach the age of 80.  If you plan to retire early, you will have a smaller Social Security payment at retirement along with less in savings, a smaller pension, and fewer dollars in your retirement plan.

Contribute as much money as possible to your qualified plans so that you can achieve financial independence in retirement.  Throughout your retirement, you’ll likely need around 70-80% of your pre-retirement income to live.  While some of your working years expenses will be gone in retirement, your health care costs will likely increase significantly.  Social Security, personal investments, and annuity payments are all sources of retirement income.  While an IRA rollover, annuitization, and a trustee transfer will keep your money safe from taxes, a lump sum distribution will subject your money to taxes.

If you take money from a retirement plan prior to age 59, you are subject to a 10% penalty unless you make a 401k annuity transfer.  In order to ensure that you have enough income to meet your retirement needs, you have to make a plan, set your timing, know any tax penalties, and be sure not to do all of the planning without the help of a professional.  Retirement planning is some of the most important planning you’ll do in your life, so having a professional to help you is key.

Written by Rachel Summit

Follow Finance Mama on Twitter http://twitter.com/#!/financemama

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

Follow Finance Mama on Twitter http://twitter.com/#!/financemama

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

Follow Finance Mama on Twitter http://twitter.com/#!/financemama

Four more states and the District of Columbia will ensure that consumers are getting the best annuities by the end of this summer, according to Linda Koco of Insurance News Net.  In “More Annuity Suitability Rules Going into Effect This Summer,” the Annuity News editor says that the newest states to adopt the NAIC’s rules will be Rhode Island, Oregon, Ohio, North Dakota and Washington D.C.  The NAIC’s Suitability of Annuity Transactions Model Regulation (NAIC 2010) has been a model for many states to comply with the Dodd-Frank Wall Street Reform and Consumer Protection Act.  All states must comply by June 16, 2013.  States must ensure that insurance companies are selling consumers the best annuities for their situation and require agents to take a four hour class about annuities and their impact on consumers and taxes.

There are 17 states and territories that already have laws mimicking NAIC 2010.  Six states have plans already in the works, and a total of 28 states are expected to have working plans this year.  The Insured Retirement Institute (IRI) and RegEd, a compliance and education firm, are working together to provide the annuity training to agents and state governments.  The Oregon Department of Consumer and Business Services found that most insurance companies and agents have been receptive to the new rules, as long as they are similar to the NAIC guidelines.  In 2005, the state issued guidelines deterring the sale of unsuitable annuity products and these new guidelines have built from that initial model.  Products like the 5 year fixed annuity and other annuities must be the best choice for the consumer in order to pass the standard ruling.  All of the NAIC regulations keep insurers and agents accountable for protecting consumers from products that they should not buy because they aren’t in their best interest.

The Insured Retirement Institute and other insurance agencies are working hard to make sure that the government doesn’t change the current annuity tax benefits.  Investment News’ Mark Schoeff wrote about the potential changes in “Deferral denial? Annuity tax alteration would wound middle class.”  As the federal government looks for ways to balance their budget and pay for recent spending, products with tax deferral benefits like annuities may just lose one of their top benefits.  The entire insurance industry is working to convince the government that cutting out the tax deferral for annuity products will really hurt the middle class.  The IRI reports that 80% of people investing in annuities make below $100,000 a year and 64% make below $75,000.  By cutting out the benefit that lets investors’ money grow tax-deferred until they start receiving payments, it will hurt their ability to save for retirement.

Even if investors lose the ability to grow their money tax-deferred, it may not result in a decrease of their final value.  However, they will have to use another source of income to pay for the taxes yearly if they have purchased a deferred rather than an immediate annuity.  The IRI’s president and CEO stresses the importance of annuities for Americans saving for retirement because they have lost many of the traditional pensions that guaranteed them retirement income in the past.  Tax-deferred annuities provide Americans with the guaranteed monthly lifetime income that they need throughout retirement.  Since there are skeptics basing their annuity information on the few bad apples in the industry, organizations like the IRI have to work extra hard to convince lawmakers and politicians how beneficial annuities are, especially to the middle class.