Annuity FYI Blog

In Maria Wood’s LifeHealthPro article “Checking Into Annuities,” the author draws a comparison between the annuity industry and the hotel industry after working in both.  Both annuities and hotels may seem like simple products at first glance, but both have many different options and their industries work hard to cater to the needs of their clients.  For people who didn’t want to pay more money for hotel amenities they didn’t use, hotels started changing their offerings and excluding some items to make rates cheaper.  There is always the option of an expensive hotel with all the amenities for those looking of course.

The annuity industry works hard to to cater to clients’ needs while maintaining their bottom line.  That is what brought about the options of fixed annuities, variable annuities, indexed annuities, and deferred versus immediate annuities.  Some annuities exist that combine long term care insurance or life insurance with an annuity product.  There are many options for funds, riders, and distribution channels when looking into the best immediate annuities and deferred annuities.

Innovation is important in both the annuity industry and the hotel industry.  With hotels, it ensures that everyone can get the exact amenities they want for the price.  The same holds true for annuity products.  If you want to pay more for GLWBs, death benefits, or other annuity riders; that is available to you.  Variable annuities are great for investors who like some risk and can handle stock market ups and downs.  Those looking to take on little to no risk are better suited for indexed annuity products.  Annuities and hotels both try to cater to the clients who use or will use them.

Written by Rachel Summit

Follow Finance Mama on Twitter http://twitter.com/#!/financemama

There is a good chance that you are one of the many people who underestimate the strain inflation is likely to place on your finances in the future.  It is important to account for inflation in one way or another so that your money doesn’t run out faster than you planned.  Steve Burns of the Daily Breeze was asked about inflation and gave his answers in “Keeping up with inflation — stocks vs. bonds.”  Burns recently published an article about evaluating Social Security benefits through the use of an immediate annuity calculator.  The article said that the cost of an inflation-adjusted annuity would be about 50% more than the cost of purchasing a fixed annuity not adjusted for inflation.  A reader wrote in to ask Burns how he came up with this percentage and if he took age into consideration.

He looked at two different companies offering inflation-adjusted annuities.  While the 50% figure seems high to those reading it, he believes that many of us underestimate the real effects that inflation will have.  A 55-year old man using $100,000 to buy a fixed annuity with lifetime income would get a monthly payment of $420.  Compare that to an inflation-adjusted annuity where your payments would start at $268 per month.  That equals out to a 57% increase between the two types of annuities.  That number goes down to 39% if you wait ten years and purchase the annuity at age 65.  While there is a steep increase in the cost of an inflation-adjusted annuity, it is important to to account for inflation in some of your investments, whether it be your annuities or not.

Written by Rachel Summit

Follow Finance Mama on Twitter http://twitter.com/#!/financemama

While the financial climate is likely to continue its up and down pattern in 2012, the safety of annuities will keep their popularity intact this year.  Eric Thomes of Life Health Pro gives five predictions for annuities in 2012 in his article, “Annuity Industry Crystal Ball: 5 Predictions for the Year Ahead.”  First of all, chances are good that interest rates will remain low this year.  Even with low fixed annuity rates, sales of annuities hit records last year.  The industry has done a fantastic job of showing people that making money in retirement isn’t the only thing to focus on; it’s also important to protect the money that you have already made.

Markets are likely to remain volatile and the news media is hyping this up to the maximum.  The best thing you can do is maintain a financial professional that you trust to sort out the headlines and make sound decisions.  A volatile market is not necessarily a bad thing for annuity investors.  The industry needs to focus on the safety of annuities so that its clients don’t panic in down markets or rush into rash transactions when markets are up.  November’s presidential election will keep retirement a big topic in the news.  From Social Security and pensions to tax changes, regardless of the election’s outcome, annuity holders will be safe.

Fixed equity indexed annuities will be more popular than ever in 2012.  The end of 2011 brought new companies into the fixed indexed annuity market, companies who had never previously sold this type of annuity.  A rough financial market has highlighted the benefits of market downside protection and potential for upside gain that are offered by fixed equity indexed annuities.  More sellers means innovation and better choice in the fixed indexed annuity market.  Finally, investors will continue their need for safety and security in retirement.  The guaranteed income that you cannot outlive is an annuity benefit unparalleled in the financial world.  It is up to insurers and advisors to educate their clients about annuity benefits.

Written by Rachel Summit

Follow Finance Mama on Twitter http://twitter.com/#!/financemama

While the title of Robert Powell’s MarketWatch article indicates that variable annuities with GLWB’s aren’t good, it’s a bit misleading with the honest information presented in the article.  In “Variable-annuity guarantees disappoint over time,” Powell basically says that variable annuities are not right for everyone and they aren’t always a good fit, something that Annuity FYI always tries to portray.  While they aren’t everyone’s best investment, they are good for many people and for different reasons.

The main downside listed in the article is the fact that variable annuities with GLWB’s are worth less in the future after accounting for inflation.  Most investments are.  The article fails to mention the fact that you can purchase annuities that get adjusted for inflation and while they cost more, if inflation is one of your main concerns, they are worthwhile.  The author says that variable annuities are not right for people who can cover their living expenses through Social Security and pensions.  We agree wholeheartedly with that statement.  Variable annuities, and other annuities for that matter, are meant to bridge the gap between your living expenses and the money you will have coming in from those sources.  Most people don’t have traditional pensions anymore and Social Security is rarely enough off which to live, so that is where the need for annuity products comes into play.

We appreciate the fact that the author says variable annuities are right for some people, especially those without traditional pensions and those who are risk-averse.  Annuities with GLWBs have the benefit of a minimum income floor with the potential for market upside.  Without specific inflation protection, the author is right, your money will be worth less in the future.  That holds true for any investment without inflation protection.  While the title of Powell’s article makes it seem like he is saying the guarantees aren’t worthwhile, he is really saying to make sure you consider inflation when taking those guarantees into account.  And if the protection of a GLWB is what helps you relax about your future, variable annuities just might be the product for you.

Written by Rachel Summit

Follow Finance Mama on Twitter http://twitter.com/#!/financemama

In the U.S. News & World Report article, “Do You Need an Annuity?,” Phil Taylor goes through the benefits of annuity products in retirement.  Annuities came about to ensure that retirees do not outlive their savings.  Because of their low risk, fixed annuities are a conservative investment popular with retirees because of their tax-deferral benefits, exemption from creditors, and avoidance of probate through death benefits.  Their penalty for early withdrawal is usually gone after less than ten years and there is usually no limit to the amount of contributions you can make.

The article describes how you receive monthly income payments from an insurance company in exchange for either a lump sum initial payment or several installments.  The amount you’ll be paid out is predetermined whether the amount paid in is more or less that the payout you’ll get.  The payout options are detailed as follows.  If you choose straight life, you’ll get monthly payments for as you long as you live, but nothing will be passed on to your heirs.  If you choose life with period certain, death benefits will be paid to your heirs to make up for any money you paid into the annuity that has yet to be paid back.  There is also the choice of joint life for you and a spouse or joint life with period certain where your heirs would receive death benefits just like the above mentioned annuity.

With a systematic withdrawal, your payments will be fixed and will come to you either monthly, quarterly, or yearly.  Finally, you can get a lump sum annuity payment at a date in the future.  Fixed annuities are a great option for retirees, especially those who don’t have traditional pensions or multiple sources of monthly income like Social Security.  Speak with an expert for more information and to see if an annuity will work for your retirement.

Written by Rachel Summit

Follow Finance Mama on Twitter http://twitter.com/#!/financemama