Annuity FYI Blog

According to a recent survey, investors are quite uncertain with the retirement issues surrounding them and could use more help from advisors.  Danielle Andrus of Advisor One says that many people are not happy with the support offered from their employer’s retirement plan in her article “Unsatisfied and Uncertain–Investors Need Advisors’ Help: Retirement Report Roundup.”  Cogent Research’s study of investors found that more than half were unhappy with their current situation and need advisors’ help transferring 401k annuities and other retirement savings plans.  Those who are happy with their current employer plans are three times more likely to roll their money over with the same company holding their 401k or 403b plans.  Investors were most satisfied with Fidelity, Wells Fargo, Vanguard, Merrill Lynch, and Charles Schwab.

LIMRA research has found that half of pre-retirees have not even considered the possibility of outliving their income.  Fewer than one third of those set to retire in the next three years actually have a written retirement plan in place.  Advisors will be able to help pre-retirees and retirees make decisions to carry their savings throughout their lifetime.  Annuities with guaranteed living benefits have been increasing steadily and were up 8% in 2010.  With $81 billion in sales of annuities with guaranteed living benefits in 2010, the total assets of variable annuities carrying that rider went to $521 billion during the fourth quarter of last year.  New annuities with these riders were introduced in 2010 by Hartford, Principle, and Protective.  Our experts can help you with 401k annuities and guaranteed living benefit riders that will make your money last over your lifetime.

Our series of Real World Scenarios continues:

The guy on the radio says to buy the Vanguard annuity, and that it is the best because the fees are so low. What should I do?

I don’t know that he said it was the best, but I’ll take your word for it. I’ve heard several people on the radio and read several newsletters making similar claims, and personally it bothers me when I hear it. Vanguard is a very good company in my opinion, and second-to-none when it comes to indexed funds (i.e. S&P’s 500 Index, Mid Cap Index, etc). I say second-to-none because all indexed funds are essentially the same, and Vanguard’s are the least expensive.

But when it comes to annuities as with most things in life, I believe you usually get what you pay for. Many people get very caught up in fees and fail to focus on the bottom line. The cheapest is rarely the best. If someone’s rate is low and they are good at what they do, it won’t be long before their rate goes up. That’s simple supply and demand. The opposite is true also. If someone’s rate is higher and they aren’t doing a good job, they will lose business and their price will have to fall in order to attract more business. My father always said, “There’s no such thing as cheap quality.” I’ll add one more t o that: “Price is only an issue in the absence of value.” If you needed brain surgery, would you go to the cheapest doctor you could find? If you hit someone in your car and they were suing you for everything you own, would you shop for an attorney by using their hourly rates as your main criteria?

When it comes to your retirement nest egg, very few things are more important and demand more attention and careful consideration. Search for performance, fund selection, management tenure, fund features, and benefits, but don’t get overly hung-up on fees. If one variable annuity is charging 2.25% in annual fees (the industry average) and has a 5-year track record of 30% per year (net of fees), all with the same management team, and another variable annuity is charging 0.50%, but they’re averaging 20% per year net of fees, which would you rather own? Seems like a simple answer, but you may be surprised by how many people would say the latter.

Just over a year ago Transamerica Life Insurance Company introduced the Prinicipium II variable annuity product, according to an August 25 company press release entitled “Transamerica’s Principium II Variable Annuity Continues to Gain Market Share.”  The product is marketed as a lower-cost variable annuity that has ETF-based sub-accounts, is easy to understand, and offers optional benefits in line with Transamerica’s other products.  Transamerica believes itself to be one of the first companies to offer lower-cost options for their investors.  They see many of their competitors developing similar variable annuity offerings.

Sales have grown each month in 2009 for Transamerica’s variable annuities and they attribute much of that growth to the Principium II.  Investors costs are kept low largely because of the ETF-based sub-account options.  Vanguard is the ETF provider for 2 of Transamerica’s sub-account choices because they keep investor costs low and have great expertise in index management.  Transamerica’s CEO believes that their lower-cost variable annuity presence is driving the company’s sales success this year.

According to the Retirement Income Reporter, Vanguard is planning to launch a new variable annuity that features a guaranteed lifetime withdrawal benefit. The firm has filed an application with the Security and Exchange Commission for their approval.

The GLWB rider is expected to have a 1% fee, although exact fees and payout rates are unknown. Vanguard claims that this new annuity will be like its no-load, no surrender-fee variable annuity, except with a lifetime income benefit tacked on.

While this proposal could change significantly before it goes to market, it states that there will be a $25 annual fee if the account value drops below $25,000. As of now, the minimum initial investment will be $5,000.

On The Huffington Post, Dan Solin writes that immediate annuities are a less publicized yet suitable investment for retirees or those about to retire. He cites evidence that people who invest in an immediate annuity as part of their retirement portfolio are less likely to outlive their savings, a big concern for baby boomers.

Several companies offer immediate annuities, including:

• Vanguard
• Fidelity
• Charles Schwab
• TIAA-CREF