Annuity FYI Blog

Many big name insurance companies are changing their strategies for managing volatility, according to Investment News’s Darla Mercado.  Unfortunately, the financial advisors with which they work don’t have a good understanding of the new strategies or exactly why they are being used.  In the article, “New VA strategies confusing to advisors,” Mercado says that many advisors are complaining that they don’t know enough about these new variable annuity strategies to use them, let alone explain them to their clients.  Advisors would also like to be sure that they are not only for the insurance companies’ benefit but in the best interest of their clients as well.

Variable annuity managers have started using more bonds and futures contracts than equities to guard against volatility.  AXA Equitable, Ohio National, Prudential and Transamerica have already been using these new volatility managing strategies.  Lincoln has just started offering such a variable annuity and MetLife will be adding three new funds to their variable annuity offerings soon.  Advisors are most confused by the fact that each insurer is using their new strategies differently and these strategies are very different from mutual fund sub-accounts.

Despite the fact that advisors are complaining about confusion, most insurance companies have been offering educational tools to prepare advisors and inform them after changes have been made.  Over 3,500 advisors were treated to lunches and dinners by MetLife in order to train them through videos and presentations.  They spent a year and a half training on the new funds and how they work.  Lincoln has been using online presentations, videos, and person to person training for their staff, broker-dealers, and advisors.  But because of the complexity of most futures contracts, many advisors are doing a lot of their own research in order to understand these new variable annuity strategies.  Insurers and advisors really need to keep an open line of communication to best deal with these changing and evolving strategies.

Written by Rachel Summit

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If you have $1 billion lying around and you’re looking for an investment, you might be able to purchase Aviva USA.  Multiple sources have said that the British company’s U.S. business is for sale, according to The Des Moines Register’s Adam Belz.  The article, “Aviva would consider sale of U.S. unit; 1,300 employed in West Des Moines,” says that Aviva’s CEO let investors know it would consider offers from those looking to purchase it’s U.S. annuity and insurance business.  While he didn’t dispute the claims, Aviva USA’s CEO assured his agents that they would not be blindsided and nothing was currently in the works.  With 1,300 people working at the two-year old Aviva USA headquarters in Des Moines, the city has a lot to lose if the company is sold and moved elsewhere.

The reasons Aviva may be looking to sell its U.S. business are just speculation, but some say it’s because low interest rates have hurt the demand for indexed annuity products.  Obviously low interest rates in the market mean that Aviva has to offer lower annuity rates on their signature indexed annuity products.  Aviva USA increased their operating profit 15% last year to $693 million, but fixed annuity sales in the overall market decreased by 1.1%.  An Aviva spokesperson says that fixed indexed annuities still offer a safe return on investment, even with lower interest rates, so it’s anyone’s guess as to why they might want to sell.  It’s possible that the British company wants to focus its capital on European and U.K. investments.  Regardless of the reasons, if Aviva sells its U.S. business, they will likely receive about half of what they paid for the annuity and life insurance business six years ago.

Written by Rachel Summit

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Tomorrow is the last day for National Retirement Planning Week, an informative week run by the National Retirement Planning Coalition.  The Insured Retirement Institute leads this Coalition and works hard to show Americans that they can plan for a successful retirement despite all the difficulties in our current economy.  According to Exec Digital’s “AXA Equitable Supports National Retirement Planning Week,” AXA Equitable is also working hard this week to spread information and education about the importance of retirement planning.

Everyone realizes that retirement planning is easy to put off because of the immediate demands we have in everyday life.  Since it is far into the future for many of us and is a very daunting task, retirement planning often isn’t done earlier enough.  Although National Retirement Planning Week only lasts April 9-13, this blast of information will hopefully ignite a continued effort to get Americans to understand the importance of retirement planning.  Luckily, technology has made it much easier to plan for retirement through apps on smart phones and online tools and calculators.

AXA Equitable made a list of the best online retirement planning information and tools, which is available on their website.  You can find calculators to determine your Social Security income, any retirement income shortfall you many have, and Blackberry and iPhone retirement income calculators.  There is also an online tool using a virtual retirement advisor.  You can get information on how much income you need to save for retirement, the monthly income you could receive from an annuity product, and much more.  With people living longer, increasing health costs, fewer pensions, and questions surrounding Social Security, the National Retirement Planning Coalition stresses the importance of planning ahead for your retirement.

While the concerns in Tom Sightings’ U.S. News & World Report article “3 Things to Know About Annuities” are surely valid, he doesn’t tell the whole story about annuities.  There are definitely a lot of details to look into concerning annuities and also some products out there that would not work for many investors, but there are options and annuities that combat the concerns brought up in Sightings’ article.  The article first points out the benefits of annuities, a monthly income stream that will last the rest of your life.

In the author’s first negative point about annuities, he mentions that while they seem simple, they really are not.  That is true.  Most annuities are complicated products and that is why you are best suited to speak with an expert before making any type of annuity purchase.  But the options he lists as confusing are some of the best available options that annuities carry and can help you meet all of your financial retirement goals.  Death benefits, joint annuities for spouses, variable annuities with the option of growing your annuity rates, and fixed indexed annuities tied to a stock market index are all positive annuity options in my opinion.

This article says that there are no guarantees with annuities, but its examples don’t take the whole picture into account.  Yes, inflation adds the risk that your current monthly payment will not buy you as much in a couple decades, but annuities offer the option of purchasing inflation protection.  And while it is true that annuities are not backed by FDIC insurance and are typically subject to the financial strength of the insurance company, most states offer a guaranty of at least $100,000 for annuity products so you do actually have protection.  While there are fees with annuities, doing your homework and using an expert’s help will balance those fees with the benefits you desire to give you peace of mind in retirement.

Finally, the author says that because of low interest rates, it is not a good time to buy an annuity.  Would it be better for all investments if interest rates were higher?  Of course.  But that doesn’t mean it is a bad time to buy an annuity.  Fixed equity indexed annuities whose rates depend on an index and variable annuities give you some guarantees along with the option of growing your interest rates.  Purchasing multiple laddered annuities allows you to take advantage of any interest rate gains in your future purchases.  While everything offered by annuities is not perfect, nothing really is and the benefits of most annuities really do outweigh the current downsides.  We’ve never said that annuities are right for everyone or that the products are interchangeable, but annuities offer security in retirement that few other things can and are great for many people.

Written by Rachel Summit

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In the article “Retirement income: New strategies should be welcomed,” Mark Warshawsky compares some retirement scenarios using different types of annuities.  The Pensions & Investments article points out the importance of a successful retirement strategy, especially for baby boomers heading into retirement.  The government has been stressing the importance of annuities as both the Treasury and Labor Departments have plans to change rules in order to make it easier to use annuities in retirement planning.  The author is calling for the government to take away those rules impeding the ability of Americans to achieve lifetime income through their retirement accounts.

In his analysis, Warshawsky looks at six retirement income strategies using the same initial balance and retirement age.  The first option is drawing down your retirement account using a specific annual percentage; many people use a 4% estimate.  The second and third use your entire account balance to purchase either a lifetime immediate fixed annuity or immediate variable annuity.  With the fourth option, you would buy a deferred variable annuity that has a guaranteed minimum withdrawal benefit (GMWB) attached.  The fifth and sixth options combine consistent withdrawals with the purchase of either one fixed annuity or laddered fixed annuities up until age 75.

All six different strategies had their own benefits and drawbacks, including which had the highest real balances and real income.  But for the average retirement, the fifth and sixth strategies offered the most benefits.  A combination of using drawdown and annuities gives a good income base and allows you to manage your wealth in retirement.  The main benefit of the fourth strategy of using a deferred variable annuity with a GMWB is that you have the simplicity of using just one account to finance retirement.  An expert can help you determine which method is best for your personal goals.

Written by Rachel Summit

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