Annuity FYI Visitor Blog

In the Wall Street Journal, Brett Arends explains “How to Salvage Your Retirement.”  While there are people that have little to nothing saved and won’t be able to retire when they’d like, many people have employer sponsored pensions or home equity that will help them in retirement.  It’s not always enough though and a lot of Americans don’t have either of those options available.  According to a recent study, forty percent of workers are not saving for retirement.  Arends’ top tips follow.

• Work as long as you possibly can.  This gives you more time to save, allows the savings you already have or are now saving to grow, and lowers the number of years that you will need to use those savings to live.  Delaying Social Security payments is also wise because you will receive more each year.
• Lower your costs of living in retirement.  One of the best ways to do this is to live where the cost of living is low in the United States.  Moving somewhere in the central U.S. tends to have the lowest housing and living expenses.  Even moving a little farther outside of a big city makes a difference.
• Make a plan for yourself that isn’t concerned with leaving money to your heirs.  Immediate annuities and reverse mortgages help you to get more out of the same retirement money.  There are sacrifices to be made for both, so make sure the options are right for you.
• It can’t be said enough: spend less and save more.  While it seems like a simple idea, many people just are not following the concept.  Starting now, wherever you are in the retirement spectrum, will always make a difference and help your future money grow.

Use tax breaks for people over fifty to your benefit and save for 401k annuities and IRAs.  You are able to put more money into these accounts than those younger than fifty.  Take advantage of what the government has to offer.  Work longer, lower living costs, think about your own future, and save.

In the Investment News article “Eight big changes that will reshape the annuity biz,” Darla Mercado summarizes a report from Jack Marrion of Advantage Compendium Ltd.  Fixed annuities will see their largest sales ever in the next ten years because of the 58 million Americans nearing retirement will be more receptive to the product’s value.  The 1st change we’ll see in the next ten years is a drop off in 1035 exchanges as it becomes more difficult to transfer from one annuity to another.  With the likely passage of Rule 151A classifying annuities as securities, marketing organizations (MOs) will phase out of existence.  The 3rd change will be a takeover by securities regulators ensuring suitability of annuity products.  The MOs that remain will have to have securities connections with broker-dealers or RIAs to stay competitive.

The 5th change that Marrion believes will happen when you compare annuities today and in ten years is that they will be seen much more in pensions as the planners get comfortable with the products.  Next, the way that guaranteed benefits are offered now will be overhauled with new options that are better for investors.  The 7th change is that Wall Street could be a large part of the annuity industry by getting involved through the teaming of investment firms and life insurers.  The final change will likely be a skyrocketing of fixed annuities sales in the next ten years.  As the products and their benefits evolve, Marrion believes that future retirees will be very open to fixed annuities.

According to Darla Mercado of Investment News, insurance companies have new targets in their sight to increase sales of variable annuities.  Mercado’s article “Insurers target new channels to help boost VA sales” talks about the insurance companies’ plans.  At the Insured Retirement Institute’s marketing conference in New York this week, the panel spoke of their need to change direction due to the financial crisis.  Insurers are looking to reach out to different types of potential customers and advisers in previously uncharted territories.

One of the biggest groups of people who could potentially benefit from variable annuities are 401k participants and managed-money programs.  Insurers hope that pre- and post-retirees will make 401k annuity transfers and purchase variable annuities from them.  The purchase of annuities will guarantee a lifetime income stream throughout retirement.  Some new products have also come out of this need to advance with the changing economic climate.  Lincoln Financial is introducing a long-term-care rider with both their fixed and variable annuities.  Updates and changes from insurance companies are meant to help consumers in the long run.  A little competition can breed great ideas.

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.