Annuity FYI Visitor Blog

After President Obama’s Middle Class Task Force began the process of promoting annuities, the US Department of Labor (DOL) and the Treasury have put out a request for information, according to Money Management Executive’s “Treasury, Labor Dept. Issue RFI on Annuities in 401(k)s.  They are seeking out information on the benefits and drawbacks of using 401k annuities transfers to secure retirement income for Americans.  Since participants receive income in lifetime installments with annuities, the Treasury and DOL want to ensure that this form will work the best for the most people.

The American Council of Life Insurers was already excited about the Obama administration’s promotion of using annuities in different types of defined contribution plans.  They said in a statement that they are happy to provide information about the products to the Treasury and DOL.  The Insured Retirement Institute (IRI) will also be putting together annuity information for the departments to use in their research.  The government worries that an increasing number of retirees are opting for lump sum payments of their 401k or other plans.  With annuities, they purchase the product with that retirement money and receive a stream of income payments monthly that are guaranteed over a lifetime.  The departments’ RFI will help them gather more information for government recommendations.

The Obama administration is a big fan of annuities, according to “The unloved annuity gets a big hug from the president,” by Ron Leiber of The Boston Globe.  While President Obama did not end up discussing annuities in his State of the Union address last week, they are widely discussed in a report from his Middle Class Task Force.  Obama’s administration is promoting annuities as a vehicle to help Americans obtain a secure retirement.  In exchange for a lump sum of money at purchase, investors will receive a monthly income check for the rest of their lives.  Annuities are one of the few products to counter the longevity risk, running out of money while you are living.

The investors who were previously fearful of the risks of annuities may just take a second look at this unique product.  An immediate fixed annuity is the simplest form and the least “risky” from many viewpoints.  Variable annuities were derived from them and have their own risks and rewards.  Maybe the biggest fear investors had was losing the money if they died unexpectedly.  There are options available to add a spouse or other loved one onto your annuity to receive payments for a specified period of time if you die.  Inflation was another risk that worried investors, but with the option to purchase an annuity that rises with the consumer price index, you can avoid that as well.  President Obama may be issuing tax incentives for investors to purchase annuities for retirement along with requiring plan administrators to show employees the monthly payments they could receive with annuities to help promote them even more.

In The Insurance Letter’s article “Proposed Legislation Should Boost Retirement Annuity Sales,” Alan Levine describes Senate bill 2832.  The proposed amendment to the Employee Retirement Income Security Act of 1974 is meant to help broaden the awareness of planning for a lifetime of retirement income.  Most retirement plans now only show the lump-sum value on participants annual statements.  This bill would require 401k and other private retirement plans to show more information on their annual statements.  Plan sponsors would have to show how that lump-sum value will pay out in guaranteed monthly income, based on retirement age and the investment vehicles used by participants.

Senate bill 2832 could encourage investors to make 401k annuity rollovers with their retirement income.  Since a lump-sum value is really only half of the retirement picture, investors ability to see how their money translates into guaranteed lifetime payments is crucial.  With the government’s possible new requirements, 401k and other retirement plan sponsors might be adding more immediate annuities and variable annuities that have guaranteed lifetime withdrawal benefits.  With more than $3 trillion in retirement plan assets, the government’s regulations could surely effect a lot of annuity decision making.  The government would not require annuities to be offered, but by requiring monthly payout options to be disclosed, annuities seem to offer the best guaranteed income benefits.

In the Chicago Sun-TImes, David Roeder describes why there is “Little payoff seeking the next Google.”  He summarizes some of the latest financial news and goings-on.  Financial guys on TV always seem to be looking for the next company that will start from nothing and skyrocket to success, like Google or Apple.  But looking into the past 10 or so years, the companies with the highest expected growth potential actually had the worst annualized returns.  It seems that the lowest expectations in the stock market actually provide for the best investments.  There are some large companies whose stocks are being recommended by Chicago Investment banks like William Blair & Co.  Others are looking to invest in products that teenagers love: food & entertainment included.

Companies like MetLife, Hartford Financial, and AIG look to benefit from the Obama administration’s new recommendations.  They are looking to introduce rules that will push retirees to 401k annuities rollovers.  Currently only 2% of people with 401k’s convert them to an annuity in retirement.  Since annuities help to counteract the risk of outliving one’s savings, the government believes that this guaranteed income will help Americans through retirement.  Finance information is all over the news and has even seeped into the entertainment world.  A new documentary entitled “Floored” about the Chicago trading floors is playing in Chicago.  With the renewed public interest in financial freedom, information about stocks, annuities, and retirement is at the forefront of America’s publications.

FINRA released survey results detailing the financial habits of American adults, according to their news release “FINRA Foundation Releases Inaugural Financial Capability Survey.”  The FINRA Investor Education Foundation was researching the ways that Americans spend, save, borrow, and plan out their future finances.  This National Financial Capability Survey was completed by FINRA, the U.S. Department of the Treasury, and the President’s Advisory Council on Financial Literacy.  The leaders of all three institutions met at the U.S. Treasury with some high school students to discuss the results.

With an unknown financial future as a reality for many Americans, results showed that many need more education to compare annuities with other financial products and solutions to retirement.  More than half of Americans do not have money saved for their children’s education.  Over twenty percent use methods like payday loan centers and pawn shops regularly for borrowing money.  Most Americans don’t have an emergency fund for financial emergencies.  Only forty-six percent of those surveyed were able to correctly answer two basic questions about inflation and interest rates.  FINRA believes that more financial education is a necessity for Americans.

The FINRA Foundation is funding thirty-one new grants to provide financial education throughout communities that is unbiased and that works.  A partnership with United Way Worldwide will seek out low- and middle-income Americans that need this education to be on successful financial paths.  FINRA is also expanding the Smart investing@ your library program.  Through a partnership with the American Library Association, this program reaches twenty-three million Americans throughout twenty-six states.  These financial education programs are important to FINRA and the U.S. government so that financial mistakes from the past are not repeated in the future.