Annuity FYI Blog

According to Investment News’ Darla Mercado, financial advisors are more loyal to Jackson National Life Insurance Co.’s variable annuity products than to any other company.  In the article, “Advisers most loyal to this VA provider,” we learn that Jackson National had the best variable annuity reviews followed by Prudential Financial Inc.  Jackson moved up from second place last year to throw Prudential out of the top spot this year.

Cogent Research performed the study of over 1,500 financial advisors.  They were asked what percentage of their business was dedicated to variable annuities and they rated their happiness with certain variable annuity factors.

Jackson’s internal wholesaler support had such a high ranking that it helped them grab the top spot.  Prudential had the highest variable annuity reviews for different product features, even though they didn’t get the top spot overall.  Advisors liked their guarantees, especially the Highest Daily feature.  Jackson does have nearly 100 subaccount choices as well, which still helped them reach number one.

The ChoicePlus variable annuity from Lincoln National kept them in third place this year.  Ameriprise Financial maintained their fourth place spot year to year.  Nationwide took the fifth spot from Ohio National, who came in seventh.  MetLife was in sixth place this year as well as last.  Sun Life, Allianz Life, and Transamerica finish the top ten for variable annuities.

Written by Rachel Summit

In the Annuity FYI article, “From the Wreckage of the Financial Crash, Annuities Emerge as Market Safety Net,” Tristam Korten says that variable annuities singlehandedly saved many Americans’ retirement income.  Two market disasters between the decade of 2000 to 2010 saw millions of Americans lose more than half of their retirement savings in the financial markets.  The 2000 NASDAQ fall and the 2008 market collapse decimated stocks and other market investments.  One man interviewed for the article purchased variable annuities for himself and his parents after his parents lost 2/3 of their money in the collapse of 2000.  Just before the crash of 2008 he was able to secure their remaining retirement funds and his own through variable annuities.

Currently, 12% of the US population is 65 and older.  But by 2050, almost 21% of the US population will be 65 and older.  The strain that this will put on Social Security makes it an unreliable retirement source.  Since the traditional pensions that our parents and grandparents received to finance their retirement are mostly gone, there is a gap for retirement income that is increasingly becoming filled by annuities.  Your investment is usually insured from any loss and guaranteed a minimum rate of growth.  Fixed annuities have your fixed rate of return guaranteed in your contract.  Fixed equity indexed annuities link your return to a stock market index’s performance.  With variable annuities, underlying market subaccounts determine your rate of return.

Many financial professionals who were not fans of annuities at some point, believe that they are now excellent investments.  From the Director at Ohio National Financial Services to the director of financial security at the AARP, most financial experts agree that annuities should be a part of your retirement portfolio.  The payments received from an annuity after your initial investment are much like a pension actually.  Companies like Prudential and Ohio National have added additional annuity benefits to meet changing consumer demand.  The article cautions that while there are more than 15,000 annuity products in the market, many of those are not the best investments.  A financial advisor helped the man in the article grow back his own and his parents retirement savings through annuities.  But investors need to spend a lot of time and work with a reputable financial advisor before jumping into annuities.  The growth rate and principal protection of the right annuity products will carry many Americans through retirement.

The 401k annuity looks like the best bet for retirees to replace the pension income that generations before them counted on in retirement.  Fox Business published an article about this by Jennie Phipps entitled “Annuities the Next Big Retirement Option?”  After a government inquiry about the interest of using annuities in 401k plans last year, it seems like a consensus that this is going to be the way to help finance the retirement of many Americans.  Of course insurance companies are an advocate for using a 401k annuity to cover living expenses in retirement.  But the government and employers are also standing behind the investments.  While there are a lot of people on board with annuities, employees are often the ones most wary of the products.  They worry that they have to trust their money to someone else and give up all control.

There are around 6,000 different 401k plans using Prudential’s Income Flex plan.  Variable annuity reviews of the Income Flex say that the popularity comes from the minimum withdrawal benefit in combination with the potential for market upside gains.  All of the new annuity products out there are working to make improvements to give investors what they want.  There are more options, including more annuities where you can continue putting money in after the initial payment.  One of the largest issues that many people have with annuities is the concern over their security.  It is always important to purchase an annuity from a reputable insurer, but there are calls within the industry for some kind of government backed insurance, like the FDIC coverage for banks.  States do cover annuities, up to $300,000 depending on the state.  Some government insurance on annuities might help increase the popularity of the 401k annuity.

After a period of time where variable annuity products that were fee-based had a bad reputation, some of the biggest annuity companies are revamping the products.  Reuters Linda Stern discusses this new trend in her article “Analysis: New fee-only annuities aim to move upscale.”  More advisors are changing to fee-only practices now and insurance companies are making new products to attract them.  Retirement security has become more important than ever before during the past few years causing investors to change their willingness to pay more for better guarantees, like those offered with annuities.  More affluent investors tend to use fee-only advisors and they really appreciate the tax-deferral that comes with a variable annuity.

No-load, or fee-only, variable annuities are a very small portion of the total variable annuity market, but they are increasing yearly.  This year’s sales are expected to be 22% higher than sales in 2010.  Some of the big name companies introducing new fee-only variable annuity products include Allianz Life, AXA Equitable, Prudential, Lincoln National, and Sun Life.  In addition to the appeal of deferring taxes on all growth in the variable annuity, death benefits are another popular option for investors in these products.  Even fee-only variable annuities where you don’t pay commission are not right for everyone.  Depending on the mutual funds the annuities are tied to, your fees could be as much as commission on a basic variable annuity.  As with many annuities, getting past the preconceived notion the name carries can be the biggest hurdle for those who don’t understand all the benefits that come with a variable annuity.

Despite the work of the government and many insurers, the use of annuity products in retirement plans is not as common as it should be.  Daisy Maxey’s Market Watch article, “Annuities in retirement plans remain rare,” lists some of the options available to investors.  Many retirement plan administrators don’t think that the appetite is big for annuities, but BlackRock Inc. says that their research has shown increased interest from plan participants.

Prudential Financial offers IncomeFlex for defined contribution retirement plans.  The variable annuity was revamped in 2009 to meet changing demands from plan participants.  Investors receive a guaranteed lifetime payout of at least 5% starting at age 65, for a 1% yearly fee.  There are 7,000 different retirement plans offering Prudential’s product and over $500 million invested, an increase from last year of $200 million.  Fidelity has a program to help retirement plan investors create portfolios by analyzing their individual situation.  Some investors worry that 5 year fixed annuity and other annuity rates are fairly low now, but Fidelity can help investors understand the value these annuity products will bring them in retirement.

The U.S. Department of Labor has been looking into multiple regulations regarding annuity products and their use in 401k annuity plans.  Some retirement plan sponsors seek more regulation before introducing or expanding their 401k annuity offerings.  BlackRock Inc. and MetLife Inc. are working together on the LifePath Retirement Income Fund annuity, but would like more clarification from the government on their fiduciary responsibility offering 401k annuity products.  While annuity products are available for purchase by retirement plan participants, the industry is still working on making them more readily available to ensure guaranteed retirement income for investors.