The Good and Bad of the Annuity Business in 2013

As 2013 comes to a close, it’s a good time to evaluate what you’ve done over the year and see what changes you’d like to make for 2014.  This is true for annuities too.  Stan Haithcock evaluated annuities right before Christmas for his Marketwatch article, “Have annuities been naughty or nice this year?”  Mr. Haithcock definitely has a way with words and wrote an interesting piece, which included Santa pondering whether annuity carriers would be getting presents or coal in their stockings at Christmas.  I’ll summarize his naughty and nice list below and you can see if you agree with his opinions or not.

Annuity FYI strives to offer both sides of the story when it comes to annuities.  They certainly are not free, but you are paying for a good product with insurance against outliving your savings in retirement.  You have to balance the benefits you want to receive with the costs of your investments.  The first annuity industry negative, according to Mr. Haithcock, is the false claims in ads and videos on the internet.  Companies who only point out the positives and give false descriptions of annuity products should take a class in ethics.  Many insurance companies who sold variable annuities with living benefits have asked to buy back those benefits.  If you paid fees on these benefits and want them to guarantee lifetime income, selling the benefits back to your insurer is likely not in your best interest.  Mr. Haithcock doesn’t believe that the entrance of hedge funds into the annuity industry will be a good thing, but he said he’ll give it more time before fully judging.  Finally, he just doesn’t like the word “hybrid” being used in reference to annuities.  He thinks it can be confusing and would prefer those selling annuities to use the actual terms related to the products they are selling.

The first item on the “nice” list, and one of the most popular new products in the industry, is longevity annuities.  They are low cost, simple to understand, and offer excellent value with their guarantees.  This video can help you compare the benefits of longevity annuities.  Lifetime income streams are another wonderful benefit of annuities.  It’s hard to top a product that combats longevity risk and guarantees you lifetime income to supplement your pension and Social Security.  Use annuities to transfer your longevity risk over to an insurance company.  That transfer of risk is another one of the things on the “nice” list.  Principal protection, lifetime income, death benefits, and long term care coverage are four of the benefits that this author implores you to use in an annuity.  The final item on Mr. Haithcock’s “nice” list is that annuities guarantee your lifestyle in retirement.  Their guaranteed income frees you from the worries of stock market risk or a volatile economy.  You can focus on family and friends, rather than worry about paying your bills in retirement.

In general, those working in the annuity industry want to help their clients and provide them real value in their annuity decisions.  If you have any questions about the benefits or drawbacks of purchasing an annuity, contact an annuity expert before making your decision.

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