Even though there are many Americans worried about outliving their savings, Americans do have more than $11 trillion saved in retirement plans.  The government has made some changes this week that will make it easier for Americans to transfer to a 401k annuity from their company 401k plans.  This information comes from The New York Times article, “New Treasury Rules Ease 401(k) Annuity Purchase,” by Mary Williams Walsh.

One of the biggest problems with the the 401k annuity transfer was that tax rules made it nearly impossible for any kind of a partial transfer.  People had to take an all or nothing approach and put their entire 401k into an annuity or none of it.  The government has relaxed the tax rules so that people will now be able to use just a portion of their 401k for an annuity and they won’t have to do all or nothing.

New rules will also make it easier for employers to get better terms from financial firms because employees will be able to see the fees being charged by these firms.  Running lifetime annuities is not something that employers want to deal with, so the changes being made by the government excite insurance companies eager to run annuities from retirement plans.  One change makes it easier for employers to work with insurance companies and other annuity providers so that 401 annuity transfers can be done at work and not through a separate advisor.

A treasury department spokesperson says that they are hoping for an increase in longevity insurance offerings.  This type of annuity doesn’t start until 15 or more years into retirement and is meant for the time in life when people tend to run out of money.  It usually starts around the age of 80 and is a perfect supplement for Social Security at a time when savings run out and health costs increase.  It’s much cheaper of course than a traditional annuity because you plan to use it when you are much older and it will likely be used for a shorter period of time.

The maximum that can be spent on longevity insurance is now capped at 25%, so that no one is “hiding” money there.  One more change the Treasury has made lies in the way it calculates minimum required distributions for those over 70.  The amount you have to withdraw yearly from your 401k will now exclude money that was used to buy an annuity or longevity insurance.

Written by Rachel Summit

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Near-retirees have purchased indexed annuities (also called fixed indexed annuities or equity-indexed annuities) in relatively modest but nonetheless record numbers in the past year or so. The reason: the guaranteed lifetime withdrawal benefits (GLWB) of these products are now in some cases more generous than the GLWBs offered on variable annuities.

Why? Indexed annuities, which invest mainly in bonds, are less risky than variable annuities, which invest largely in stocks. Less risk means lower hedging costs for the insurer, which (generally speaking) enables the insurer to offer a higher lifetime payout rate. Testing one particular indexed annuity GLWB with the help of an online calculator, I seemed to be able to get an extra guaranteed $2,000 a year at age 70 (after a 10-year waiting period) than I could from a typical variable annuity GLWB. (Individual products and results will undoubtedly vary).

When I wrote Annuities for Dummies, indexed annuities did not yet have GLWBs. I did not recommend indexed annuities at the time, for several reasons. First, they were not easy to understand. Second, the past returns of apparently similar products varied so much that it seemed difficult to make an informed purchase. Third, some insurers paid huge commissions to agents, which implied a smaller share of the pie for the consumer. In a few headline-grabbing instances, the high commissions also appeared to incentivize high-pressure sales. Today, for near-retirees in need of guaranteed income (but who shy away from pure income annuities), indexed annuities might be worth a fresh look.

Written by Kerry Pechter

While 77% of people are happier in retirement than they were when they were working, retirement does face challenges that may be unexpected.  Milwaukee’s Journal Sentinel works on “Addressing the four most common post-retirement challenges.”  Longevity, or the fear of running out of money during your lifetime, is one of the biggest risks in retirement.  As many people live to age 90 and beyond, retirement savings need to stretch farther than ever before.  Health care costs are rising fast and the fact that you need more health care as you age makes this added cost a stressor for many retirees.

Becoming a widow is one retirement challenge that no one wants to think about.  But the reality of the situation is that 75% of married couples have a spouse who spends at least five years as a widow or widower.  The need for long term care of some sort is becoming a bigger challenge for retirees.  Four out of five women and three out of five men will need some type of long term care for a chronic health condition during their lifetime.

There are some solutions to these four major retirement challenges.  Annuity products help to make sure that you do not run out of money in retirement.  The guaranteed income from an annuity can last over a retiree’s lifetime and even include death benefits to last over a spouse’s lifetime.  Purchasing Medicare supplement insurance helps retirees face the increasing health care costs by covering whatever Medicare does not.  Some life insurance policies work in terms to cover long term care.  This long term care insurance is important to help cover the cost of extended care and the life insurance policy helps ensure that a widow is cared for in the tragic death of a spouse.  Insurance against financial doom will help relieve retirement challenges.

Written by Rachel Summit

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Recently I visited a website that provided financial education for people nearing retirement. An article on the site told potential variable annuity buyers to read each product prospectus thoroughly before investing.

I was slightly surprised by that. Virtually no one reads VA prospectuses thoroughly. Today’s prospectuses can be hundreds of pages long. Half of the pages focus on the mutual fund (i.e., subaccount) options, and a contract may offer scores of funds. Even advisors don’t read prospectuses; they subscribe to services that do it for them.

You should look at the prospectus, but fast-forward to the important stuff. I concentrate on three areas: the Fee Table, the section on “Optional Living Benefit Riders,” and the sub-section on “Investment Restrictions.”

On the fee table, look for the Mortality & Expense Risk charge, the current (and maximum) fee for the income rider you want (either the single-life or joint-option), the current fee for the death benefit rider you want, and the range of fees for the subaccount investments. These are your annual expenses.

Then flip to the Living Benefit Rider section. Check out the annual bonus, if any, that you can get by delaying withdrawals. Then look at the so-called “age bands” that tell you the percentage of your guaranteed income basis you can receive each year for life.

Finally, under the same section, look for a subhead that says “Investment Restrictions.” Typically, if you choose an income rider, certain high-risk funds will be off limits to you or a cap will be fixed on the amount you can invest in certain funds.

Not all prospectuses are organized exactly alike. But if you consult the table of contents (or use the search window, if you’re reading a pdf online), you should be able to find what you’re looking for quickly.

Written by Kerry Pechter

The Annuity News Journal article by Henry Steelman, “Is it wise to delay my annuity,” examines the benefits to deferred versus immediate annuities.  When purchasing an annuity, you have the option to start receiving payments immediately with an immediate annuity or to defer your payments until some predetermined point in the future.  If you choose an immediate annuity, you will start receiving monthly payments soon after your annuity purchase.  This is the best type of annuity for someone who has just retired and needs to maintain their monthly income to meet basic living expenses.  If you have won or inherited money and don’t need it right away, it’s probably a good idea to purchase a deferred annuity.

A deferred annuity has some advantages based on your particular risk tolerance and financial needs.  If you purchase an annuity and don’t need the monthly income right away, deferring your annuity can allow you to grow your account with interest until you need to start taking payouts.  That money grows tax-deferred which is another benefit of waiting to take your money.  It’s important to look closely at the annuity rates to make sure that your interest will be greater than the rate of inflation.  Inflation makes everything cost more, so you want to grow your money more that the added costs of inflation.  Your individual situation will be the deciding factor as to whether you choose a deferred or immediate annuity.

Written by Rachel Summit

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Some scary statistics came out of ING’s Retirement Research Institute last year.  A whopping 71% of Americans don’t have any kind of formal retirement plan in place.  That’s nearly 3/4 of America that either won’t be able to retire or will have to struggle financially because they didn’t plan ahead.  This is not good news seeing that Americans are living longer than ever and costs are steadily increasing.  This information comes from Financial Planning’s Danielle Reed, in her article “Year-End Reality Check: 71% of Americans Don’t Have a Retirement Plan.”

Of those researched between the ages of 25 and 69, working full-time and earning $40,000 or more per year, 48% of them feel unprepared for retirement.  And that isn’t to say that they don’t have any plans in place.  Seventy-five percent of them are contributing to some type of workplace retirement plan, they are simply worried that it isn’t enough.  This is why many experts want you to compare annuities when planning your retirement.  They are a perfect bridge for the gap between your workplace plan savings and the expenses you will have.

More than 4,000 men and women were surveyed for this study and less than half of them had actually sat down and figured out how much money they will need in retirement.  Not surprisingly, only 28% were working with some type of financial planner to help them ready for retirement.  If more were working with an expert, they surely would have calculated how much they need to live off of in retirement.  By using 401ks, IRAs, pensions, and Social Security in conjunction with annuity products, Americans should be able to finance their retirement well.  We just need to make sure we save enough to use these products and live how we’d like.

Written by Rachel Summit

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The retirement income business and the broker-dealer unit have been combined by New York Life Insurance Co.  They just reorganized their company into two separate businesses.  Their insurance group will remain a separate entity from the other business of retirement income.  New York Life Investments, the broker-dealer unit, will join with New York Life’s retirement income business and be headed by Executive VP John Y. Kim.  Currently, the retirement income business includes both immediate and deferred fixed annuities as well as variable annuities.

Kim has been in charge of New York Life Investments since 2008.  He will now be in charge of New York Life’s retail annuities and mutual funds, as well as their retirement plan services and institutional asset management.  Executive VP Chris Blunt will be running the separate insurance business; he previously was in charge of the retirement income business that has been combined with New York Life Investments.  His job responsibilities in addition to running the insurance business will include the company’s long term care insurance and the business operations of marketing, finance, technology, and service.  The Mexico operations are also now part of this new group.

New York Life’s market share has increased to double digits since they started their reorganization in 2008.  They have also seen significant growth in their investment business and retirement products like annuities.  This realignment will help them keep their focus on agency led distribution.  Their 12,000 agents will still be overseen by Executive VP Mark Pfaff.  The company believes this realignment will help them keep their top spot in the life insurance industry and annuity industry, as well as increase their other retirement business.  A.M. Best rates New York Life Superior with an A++ score.

Written by Rachel Summit

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The Annuity News Journal’s Christi Roberts says that “Variable Annuities Could Save Social Security.”  I think there is a valid argument for this point, but can’t imagine how long of a road it would be to get the government on board.  Social Security has been in place since 1935 and changing the system would be difficult to say the least.  But the system has become flawed as more money continues to stream out than go in.  Something has to be done to correct the demise of Social Security so that our kids and their kids will receive their money in retirement.  Maybe switching the system to variable annuities will actually be the way to go.

One advantage of variable annuities is that they grow tax-deferred until a date later in the future when you need money.  They also offer stability with monthly income payments and protection in a down market.  If you are lucky enough to possess a variable annuity during a market increase, your benefits will skyrocket.  If the Social Security system started using variable annuities, growing their income tax-deferred would at the very least push the problem of running out of money farther into the future.  Best case scenario, which many people believe is a possibility, restructuring Social Security in this way could correct the problems it faces today.

Written by Rachel Summit

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In “Why consider an annuity?,” Scott Lunsford writes in the Chillicothe Gazette that there is no better time than now to purchase an annuity.  He says that while some annuities can be complicated, a fear of many people, a fixed annuity is straightforward and offers you a multitude of benefits for your retirement years.  Since you insure your house and car with an insurance company, it is a wise decision to insure some of your retirement savings with one as well.

Fixed annuity rates are currently 3.5% and are guaranteed not to go below 2%, something that can’t be matched by many other savings vehicles.  You also are typically allowed to withdraw up to 10% of your money each year without a penalty and with death benefits, you can avoid the hassle of probate court after death.

Fixed annuities are similar to bank CDs, with the exception that they are most often bought through an insurance company rather than a bank.  Annuities are different in that they are tax-deferred and offer more flexibility than bank CDs and other savings vehicles.  They also have guarantees that last over your lifetime and in some cases, your spouse’s lifetime as well.  The author believes that everyone should at least consider purchasing an annuity, especially because of the volatile stock market and very low interest rates that we are currently experiencing.

Written by Rachel Summit

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Pacific Life has a way to increase your retirement income with their fixed indexed annuity, even if the markets don’t increase in your favor.  Their Pacific Index Choice deferred fixed indexed annuity has been popular lately as those nearing or in retirement seek to protect their savings while hoping for growth in the markets.  But in the event that the markets don’t increase, while your principal will still be safe, there is a new option available that still allows you to increase your retirement income.

The Enhanced Lifetime Income Benefit gives you the option to grow your income, regardless of what happens in the marketplace.  Your income base will increase by 8% every year for ten years if you put off taking your withdrawals for an extended time.  This can add up to a significant amount of money, especially for people who haven’t earned interest on their annuity due to a declining financial index.

The company press release gives an example of someone who purchases a $100,000 annuity with the Enhanced Lifetime Income Benefit.  By waiting ten years before taking withdrawals, the 8% increase would give this person a $180,000 income base instead of the $100,000.  Monthly payments vary based on the other options associated with the annuity, such as whether it is a lifetime income annuity or a death benefit annuity, but you could receive up to 7% annually from this fixed indexed annuity.

Written by Rachel Summit

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