Annuity Guys®

Annuity Rates, Features & Ratings: America's trusted annuity resource. Compare best options for hybrid, index, fixed, variable & immediate annuity quotes.


Helping You Create Great Results Your Retirement Deserves!


(217)753-1515
You are here: Home / Archives for Retirement

Hybrid Annuity Sales Hit All Time Highs! Do You Know Why?

By

Record numbers of retirees and savers are flocking to fixed and fixed index annuities – why?

For many baby boomers , the great recession is still ingrained into their thoughts as they make plans for their retirement. The thought of losing 30-40% or more of their portfolio in the stock market has sent them out seeking safer growth options; while other baby boomers seek the safeguard of knowing that they will have lifetime **guarantees for their foundational income in retirement.

The insurance industry is on pace to issue $100,000,000,000.00 (that’s one hundred billion dollars) in just fixed and fixed index annuities this year alone! With banks offering safe money rates that hover just over zero, we should not be surprised by the number of people flocking into contractually **guaranteed growth and income options. However, this is most likely not the only reason for this level of annuity sales growth. Annuities have traditionally paid better rates than the banks so the growth of sales should not be based upon higher interest rates alone. [continued below video…]

Video: Annuity Guys, Dick & Eric, discuss why it seems like everyone wants a “hybrid” Fixed Index Annuity!

Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified. 

According to AARP, about 8000 people will turn 65 everyday from now until 2029. These baby boomers have seen one of the greatest bull markets of all time during the eighties and nineties followed by substantial market volatility and more recently a “lost decade” of market gains. They appear to be interested in preserving their wealth and income in retirement and many are willing to give up some of the market’s upside potential to protect against market backslides. There may not be empirical evidence to support the fact that retirees are valuing the **guarantees that annuities offer, but the dollars seem to be speaking loudly that boomers believe that annuities are a good option for retirement planning.

Is now the right time to join the crowd moving a portion of one’s savings into fixed or hybrid fixed index annuities? It depends – do you feel the need to protect retirement dollars from losses resulting from the next big correction in the equities market? Do you want a predictable, stable income stream that you cannot outlive? Do you wish you had your parents company sponsored pension plan? Does the fear of outliving or losing your money keep you up at night? If you answered yes to any of these questions, you may want to join the millions of satisfied annuity owners who value the way these financial products secure their retirement.

The inspiration for this weeks entry came from our friends at the Insured Retirement Institute.

IRI Second-Quarter 2014 Annuity Sales Report: Industry-Wide Sales at Highest Level in Three Years

Indexed Annuities Power Fixed Annuity Sales to Five-Year High; Variable Annuity Sales Up from First Quarter

WASHINGTON, D.C. – The Insured Retirement Institute (IRI) today announced final second-quarter 2014 sales results for the U.S. annuity industry, based on data reported by Beacon Research and Morningstar, Inc. Reaching the highest mark in three years, industry-wide annuity sales in the second quarter of 2014 rose to $59.9 billion, a 6.8 percent increase from $56.1 billion in the previous quarter and a 9.9 percent increase from $54.5 billion in the second quarter of 2013.

Fixed annuity sales – supported by record fixed indexed annuity sales – increased to $24.3 billion in the second quarter of 2014, according to Beacon Research. This was a 7.6 percent increase from $22.6 billion in the previous quarter and a 41.6 percent increase from $17.1 billion in the second quarter of 2013. Variable annuity total sales reached $35.6 billion in the second quarter of 2014, according to Morningstar. This was a 6.2 percent increase from $33.5 billion in the first quarter of 2014, but a 4.6 percent decline from $37.3 billion in the second quarter of 2013.

“These are the highest industry-wide sales we’ve seen in three years, and on the fixed side of the market, the highest in five years,” said Cathy Weatherford, IRI President and CEO. “We continue to see moderate growth, driven by consumer need for protection and income, in all types of retirement income products, and more robust growth in certain products based on the macroeconomic conditions of the day. For example, the market is currently experiencing a surge in the sale of fixed indexed annuities that – in addition to offering upside potential with downside protection and access to **guaranteed lifetime income – can be used by consumers as an alternative to traditional fixed income investments without the interest rate risk.”

According to Beacon Research, continued growth in fixed annuity sales were largely supported by a surge in fixed indexed annuity sales, which hit a new quarterly record of $12.9 billion in the second quarter of 2014. This represents a 14.8 percent increase from first-quarter 2014 sales of $11.2 billion and a 41.5 percent increase from second-quarter 2013 sales of $9.1 billion. Income annuity sales also rose during the second quarter of 2014, topping $3.39 billion – a 3.2 percent increase from nearly $3.29 billion in the previous quarter and a 32.7 percent jump from $2.56 billion in the second quarter of 2013. For the entire fixed annuity market, there were approximately $12.5 billion in qualified sales and $11.8 billion in non-qualified sales during the second quarter of 2014. [Read More…]

 


 

Are Hybrid Annuity Income Riders Stacked in Your Favor?

By

We must own up to our play on words this week. One of the more recent popular income riders strategies is referred to as the “stacking” strategy. Of course we found our title quite witty while most of you are probably thinking – these guys really need to get out more.

However, most of us given the choice of having the odds of success stacked in our favor will undoubtedly at least consider benefiting from those odds. Does that mean this stacker strategy is superior to the traditional roll-up strategies that have been standard on most hybrid style annuities for the last six or seven years? Well, yes and no. What you have available with a stacking income rider is typically better income potential but you give up some of your contractual **guarantees in the trade-off. The income rider with a stacker works by providing a smaller roll-up growth **guarantee – typically three to four percent (instead of six to eight percent) and then stacking on the index growth for that period. Based upon historical illustrations the growth potential typically exceeds that of the traditional **guaranteed riders. However, they are based on probability and potential instead of absolute **guarantees. [continued below video…]

Video: Annuity Guys, Dick & Eric, explain some newer income rider strategies.

Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified. 

The ongoing low rate environment has squeezed insurance companies and limited their ability to provide greater income benefits without incurring crippling long-term liabilities in today’s depressed rate environment. To combat this, they created a stacker strategy which partially relieves the insurance company of the need to reserve as much money for an income rider liability by creating an opportunity to give that benefit only when the client has growth from the index – so they can pay as they go, sharing the profits with you.

Should everyone start to elect the stacker strategy on their annuity income riders? Not necessarily! The strength of annuities are their contractual **guarantees and if you like the idea of being able to own a “set-it and forget-it” style of annuity – knowing that it will roll-up to increase your future income on a **guaranteed level each year, then you will probably want to stick with a more traditional style income rider.

Are these just the two primary income rider strategies to choose from? No, again.

Another option is what we have termed “enhanced” income riders which offer minimal or no growth income **guarantees. However, you may be surprised to learn that these enhanced income riders have the potential to provide even greater income than the stacked income rider. While again not the ideal option for those requiring absolute **guarantees, they provide excellent potential for higher income based upon historical performance and some even offer an opportunity for increasing income for an inflation hedge.

As you evaluate your retirement, don’t feel as if you can only choose one of these strategies – often times the best results come from balancing multiple income strategies.

 


 

Are Annuity Complaints on the Rise?

By

Mom always said; “If you don’t have anything good to say, don’t say anything at all.”

Well, we want you to know that this rule does not apply to annuities. As Annuity Guys®, we may be a tad-bit more sensitive to reading the negativity spewed by some writers when it comes to annuities; however, it does appear that any increase in complaints by investors or consumers just comes down to one particular type of annuity – the variable annuity#.

Watch as Dick and Eric discuss complaints on annuities and other financial products.

[embedit snippet=”video-specialist-button”]

 

**Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified.

Overall, annuity complaints actually decreased in 2013, but for the popular media it appears to be a lot more fun to talk about the high commissions, high fees, and bad advisors that offer theses products. You really have to dig to find an article that compares the number of complaints from mutual fund^s and stock transactions — which far outpace those from annuity sales.

As Annuity Guys®, we are on record as stating that an annuity is not where you should put all your money, but it can be a great location to place dollars that will used to fund retirement income. Annuities are a financial tool and when used properly can alleviate risk to your portfolio.

You would never guess this article cites the fact that nine out of ten annuity owners are at least somewhat satisfied…

 Angry Annuity Clients Seek Damages

By Matthew Heimer

When stock markets are humming along nicely, customers are less likely to complain about their brokers and financial advisers: 2013 was on pace to be the fourth year in a row of sharp declines in the number of arbitration cases filed with the Financial Industry Regulatory Authority (Finra), the brokerage industry’s self-regulatory body. But as Matthias Rieker reports this week in The Wall Street Journal, complaints about one kind of investment remain stubbornly high. The outlier: Variable annuities.

Variable annuities usually offer a retirement saver a **guaranteed future payout, along with a chance of increasing the value of the saver’s initial investment depending on how markets perform; investments in many of these annuities can be tax-deferred. But they’ve long exasperated consumer advocates because of their relatively high commissions and fees, along with their often-impenetrable rules about what, exactly, an investor’s account is worth at any given time.

As Rieker reports, “In 2012, the variable annuity# was the only class of security for which arbitration claims increased”; last year, the total number of annuity complaints dropped about 20%, but complaints in other asset categories dropped far faster. […Read More at MarketWatch]

Video Transcription:

Dick: And I’m Dick.
Eric: Hello, I’m Eric and we’re the annuity guys.
Dick: Well, Eric, are annuity complaints on the rise.
Eric: No… Yes.. No… Ours? no!
Dick: Depends on which annuity complaints you want to talk about.                                                                       Eric: And that’s exactly the case. And then we see the black eye of the industry coming out in the open ever again with the old variable annuity#.
Dick: Well, and that’s something that has been on the rise are variable annuity# complaints and it runs the gammon from the fees and the surrender charges and loosing money when stocks go the wrong way.
Eric: You can loose money.
Dick: But what’s very interesting is the fixed annuities which would take in that hybrid annuity and everything. We’ve seen those complaints go down steadily. They kinda of hit the peak somewhere around 2006 – 2007; roughly around 200 complaints. And folks, when you think about this, 200 complaints over ten of thousands of folks that buy annuities in a given year; that’s not a lot of complaints. But now, they’ve actually  tapered down. Fixed indexed annuities sales have been way up and their complaints have tapered down to – last year – i think around 54 complaints for the entire year.
Eric: Even when we look at the variable annuity# complaints – one hundred sixty-five complaints on variable annuity#.
Dick: That is not a huge number.
Eric: And we should very clearly clarify here that when somebody complains about annuity, it’s typically not because of the annuity design, it’s  not the insurance company; unfortunately, it’s guys like us.                       Dick: Annuity guys.
Eric: Annuity guys or people that want to be annuity guys…
Dick: I beg your pardon.
Eric: -Who don’t fully understand the product. They don’t explain it very well, so they have consumers confused and they don’t know which direction they’re going; and their inability to articulate what product….
Dick: And Eric, this does not show up later when the person has the policy ans they have some need. They need to get additional money or they need to turn their income on or whatever; and it does not work the way they were told that was supposed to work.
Eric: They get caught with the sizzle side perhaps; the 5 percent **guaranteed roll up for income and deferral.
Dick: Or they though they’re going to earn 5 percent every year, **guaranteed. They see their account dropped a couple of years in a raw and they’re like “hey, this is not what I bought?”
Eric: That’s right! “That’s not what you’re told me”… and that’s where the complaints come from. And I guess, really to be fair to the annuity industry, we should say the number of complaints in comparison to the mutual fund^s…
Dick: Or the securities industry… and that literally, looking at the reports that we’ve been looking at I think the SEC last year had over ten thousand total complaints. Now, that’s a lot of complaints. And we tend to not see that. What’s interesting about this is that we don’t see that in this financial articles a lot; we don’t a lot who talked about that.
Eric: I think we don’t want to talk about the thing we don’t want to know.
Dick: But we see a lot of talk about “ohh, this annuity this, this annuity that.” And I’ve seen now that the populous has become a little more educated about annuities; a little more understanding us out there; I’m seeing less of these negative articles showing up.
Eric: Well, I wish I could say I see less of that. Maybe I’m drawn to… it’s like everybody has a newspaper article or blog like to pick on it. The topic of this one, “Angry annuity client seek damages.” Now, that does not say “you know, really…” If you look at proportion, it’s not nearly as bad as the people with stocks that are three, four or five times as many complaints. It’s people…. the highlights….
Dick: It crabs attention and it sells advertising; and this is part of the industry. And folks, really, when you get down to why annuities are so popular and why they have so few complaints? It is because they actually do the opposite of what the market does; they make your money safe.
Eric: Right. Safety first.
Dick: It’s right.
Eric: And that’s why i always qrench when I see people that have newspaper articles – I’m not going to mention their names because they don’t deserve the heck. They’re like ohh, I like the brokers advice until they recommended an index annuity.
Dick: You would not be thinking about Malcolm Berko.
Eric: Yes, I would. I’m thinking of him too. It gives us bad names because we are in the index annuity world; we understand how they work, we understand where the benefits are and unfortunately, people that don’t live in our world…
Dick: And if you’re just, as Bill O’Reilly says “fair and balance”, there are ways that annuities can be used wrong, ways that are used correctly; they’re just simply a financial tool.
Eric: That’s exactly right. Annuities are great way to make sure you don’t live too long. It’s longevity, it’s guarding against outliving your money and we talked about that being the strength in the cornerstone.
Dick: The principle of protection; protecting what you’ve put into an annuity in terms of premium and you know that you’ll never go backwards – we’re talking about fixed annuity – and obviously, the variable is.
Eric: And we have some issues of the variable annuities# ourselves because we don’t like to loose money and we don’t like for our clients to loose money.
Dick: Yes, we don’t like for our clients to loose money. So, are they on the rise or it depends on rather you’re talking about which type of annuity?
Eric: It depends if you’re in our office because in our office, not so much.
Dick: The complaints are under control.
Eric: That’s right.
Dick: Thank you.

The New – Immediate Hybrid Annuity™

By

What could be better than a Hybrid Annuity? How about a New – Immediate Hybrid Annuity™!

For a typical retiree with about $250,000 the income differences were just under $2,000 per year; and while $2,000 may not set the world on fire – just take that times 30 years in retirement.

Are you willing to gift $60,000 to an insurance company? Learn how to make the insurers pay you more of their money and get less of yours!

Watch as Dick and Eric discuss this New – Immediate Hybrid Annuity™ and why most advisors are trying to ignore it!

[embedit snippet=”video-specialist-button-hybrid”]

 

**Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified.

What makes an Immediate Hybrid Annuity™ better? How about larger income streams and no fees while providing access to your principal. That’s right. You don’t have to give up access to the principal unlike the immediate annuities of old where you gave up all your principal, never to be seen again. These new Immediate Hybrid Annuities™ still allow access to your principal, if needed. Are they as flexible as most of today’s hybrid annuities? No! However, for many retirees who are looking to start income in the next 12 months or defer for less than five years, this Immediate Hybrid Option can offer a significantly higher payout percentage – for **life.

[embedit snippet=”hybrid-annuity-live-demo-invite”]

More information on some of the changes to Immediate Annuities from OnWallStreet.

Insurers Add Appeal to Income Annuities

by: Donald Jay Korn – May 14, 2013

Immediate annuities, also known as income annuities and payout annuities, can replace disappearing corporate pensions, but sales have been tepid.

LIMRA, a research, consulting and professional development organization, reported that income annuity sales reached $8.7 billion in 2012, a small percentage of total annuity sales, which reached $219.4 billion. Insurers have responded by offering features such as liquidity, death benefits, and flexible income options for income annuities.

Amid these changes, advisors who are engaged in retirement income planning are beginning to take a second look at income annuities, according to Mark Paracer, research project director at LIMRA. Paracer pointed to a 2012 LIMRA study that brought responses from more than 1,000 advisors.

“Our findings showed that more advisors are interested in products in general (32% in 2011 vs. 31% in 2009),” he said. “That was especially true for RIAs (33% in 2011 vs. 24% in 2009).” That study also indicated that solutions are often well received by clients: 63% of advisors agreed while only 7% disagreed.

“Most importantly,” Paracer said, “the attitudes of advisors are shifting to more recognition of the benefits of solutions versus the benefits of non- solutions: 56% in 2011 vs. 40% in 2009. There is also a shift in advisor attitudes toward the idea that a solution should be used to cover non-discretionary expenses in retirement: 48% in 2011 vs. 38% in 2009.”

Paracer noted that including an income annuity — either deferred or immediate — can help retirees ensure that at least their essential expenses in retirement are covered, thus allowing advisors to invest the remaining portion of their portfolio with a goal of higher returns.

According to Lowell Aronoff, CEO at CANNEX Financial Exchanges Ltd., which compiles data on financial products, there is a disconnect between the need for income annuities and the amount of sales. “Retirement income research universally suggests that income annuities should be a core product for nearly all retirees,” he stated, “yet sales of these products are still fairly modest.”

One objection to income annuities has been the “hit by a truck” fear. A consumer might buy an annuity that would pay a lifetime income and die soon afterwards, thereby relinquishing capital for little return. A recent joint study by CANNEX and LIMRA found that annuity issuers now address this concern. [Read More from OnWallStreet…]

Video Transcription:

Dick: Hello, I’m Dick.

Eric: And I’m Eric. And we’re the annuity guys.

Dick. Yes! And Eric, there’s a new kid on the block.

Eric: A new innovation to the industry.

Dick: The most exciting thing that’s come along in the several years actually.

Eric: It’s funny how you make some old things new again. And people think annuities are boring.

Dick: Well, it is boring Eric.

Eric: This is exciting for us… we’re getting a lot of fun with this.

Dick: And for years, the variable annuity# was called a hybrid annuity. Then along comes the fixed index annuity; and what we saw really change that was those new income rider as they came out on them.

Eric: Opportunities for growth and income and **guarantees…

Dick: And hence, the hybrid annuity is born. And now we have the immediate hybrid annuity which has earned a little bit better from their cousin…

Eric: It’s taking some of the hybrid and fixed pieces, and some of the variable pieces and slide it on the immediate annuity which is like… “why the heck would you want to do that?”

Dick: Well, and that brings up another point agents are talking about this too much.

Eric: Don’t tell anybody. And there’s a reason why…

Dick: There’s a reason why. Well, the truth on these immediate hybrid annuity folks, there really more than likely to catch on in a big way because there’s so many good features to them that we want to explain and help you understand, but they’re also the very low commission. They don’t pay the agents very high commission.

Eric: That’s probably a lot of people really didn’t talk about even a standard immediate annuity before; and now all of a sudden we’re certainly get a little bit more innovation and I think people are going to have to start talking about it because the features are there and we’ll see what we can get – higher payouts perhaps…

Dick: A greatly increased income…

Eric: Increased income. Fees… oh -oh.. No fees…

Dick: That’s a big negative. Now that was one of the things on the variable annuity# that really became, I don’t want to say the death of the variable annuity#, but a lot of folks moved away from the variable annuity# because of the high fees; and they still do. The hybrid annuity which we’ve explained many times is the fixed indexed annuity chassis typically, the standard hybrid annuity, and it lowered the fees a lot but it still has fees Eric.

Eric: Some of them do but not all of them. The most commonly you’re looking at 1/2 and 1 percent on an income rider which is what **guarantees your income for life on that kind of fixed indexed or hybrid chassis.

Dick: So now we’ve move over to the immediate hybrid annuity and we’re talking about zero fees.

Eric: Ohh my…

Dick: No fees folks, no annual fees.

Eric: No fees, higher payouts..

Dick: For lifetime income and it last ’till your retirement and the most innovative aspect to this which is what really takes it into this hybrid annuity realm is access to your principal.

Eric: Right. Access to your liquidity… it gives you some liquidity options that didn’t used to be there. Now, we’re not going to pretend that you’re going to go out there withdraw everything without penalties or such but it does give you access to emergency cash and we’re seeing more and more carriers try to offer this.

Dick: And many folks would have opted for an immediate annuity if they had some all those options in the past; they just weren’t available. One of the things, Eric, that I want to talk about and we kinda get this… You and I were never really against the insurance company; we’re always for the client. So, if there’s a way that the client can actually win and I mean let’s face it, most clients feel that the deck is stacked against them when dealing with an insurance company. So if there’s a way to win what you really want to do is get your money out of the insurance company early, faster,… the sooner you can get your money out and have them paying you their money the better off you are.

Eric: And if you haven’t figured out what an annuity is really, it’s a return of your money to you…

Dick: Plus a small return…

Eric: Plus a **guarantee that you’ll get that return as long as you’re alive.

Dick: Yes.

Eric: Those are the key aspects of an annuity and so lifetime income… well, you want to get your portion that you paid in

back quickly and then you’re starting to work on their money.

Dick: What’s so exciting about this Eric is that we’ve been able to run the numbers and we’ve seen now the breaking point where it really works for folks, and those payouts where they can have a considerably larger amount of money at certain ages and even in that early stages make a lot more income

Eric: Well, looking at a typical portfolio size we see and 401K for a 65-year-old male, single… that difference between a popular hybrid payout paying about five and a half percent and then these immediate hybrid annuities are now also paying about almost 6.7 percent; so you’re talking about…

Dick: Compared to five-and-a-half percent…

Eric: Right. So for somewhat two hundred fifty thousand and looking as their foundational income, talk about two thousand dollars a month difference.

Dick: That equates out to somewhere between forty and fifty thousand dollars over twenty years which is a typical retirement. I mean some of which are much longer than that but a typical retirement pushes twenty years nowadays…

Eric: And I’m sorry, i said per month, it should have been year.

Dick: Right, I took it as annual… right. right…

Eric: So, The lifetime number is just the amount of money you would leave on the table is just astronomical.

Dick: It’s just large, yes!

Eric: As we’re looking at it. We’re always excited to talk to people about it…

Dick: Well, we get excited because they get excited. It’s like everyone’s kinda look at the standard fixed indexed hybrid annuity and they’ve compare them one against the other, and finally there something out that kinda breaks the mold and answers a lot of questions that folks are looking for.

Eric: Exactly, especially for those folks that are retiring, they’re getting buyout options. We’re hearing all these people and they’re gonna retire and they’re going to start needing money now and that’s where this works extremely well. It’s exciting.. I am excited!

Dick: So, we’re talking… it works better for those folks that need money in what time period? Obviously there’s a next 30 days but then how much further out might might this strategy work?

Eric: Well, with this specific strategy really because you’re using an immediate income chassis, your looking at income the next 12 months.

Dick: Yes.

Eric: But obviously then we start looking at when does a hybrid best-perform, usually on that stage you’re looking at having to deffer for at least five years.

Dick: Rights. So if you’re wanting to be able to balance this and say well “if my income, I need in about three years” maybe you should hold off a little bit or use a different type of an annuity to get you to that level where you’re ready to turn the income on and then use this type of an immediate hybrid annuity.

Eric: Right and that’s where we say run the numbers, look at the options. It might be worth taking a two percent **guarantee for a couple years knowing you’re going to get a better payment in two years with an immediate hybrid than you would with a standard hybrid annuity.

Dick: Eric, let’s put together some of those numbers for folks and do a webinar on that that they can watch and maybe even have a button on the website where they can just go and look at those numbers and do some real comparisons, and then they can get back with us if they have questions.

Eric: We’re always welcome to help share those numbers for people on an individual level that are looking at what those options would be as well.

Dick: Okay folks, thank you very much. Eric: Have a great day.

Give Money to an Internet Annuity Advisor! Are You Crazy?

By

We don’t work with crazy people (okay, maybe a couple, LOL), but we do work with a lot of sincere folks who first met us; after doing some internet research and then turned over a sizeable portion of their life savings in return for some annuities!

So, is this crazy or wise? It is really decided by two primary issues: First; working with the most capable advisor when you are choosing and structuring annuities. Second; understanding that you don’t really give your money to any advisor local or national.  Your retirement dollars along with millions of other retirement dollars are housed with a financial custodian, such as a brokerage or insurance company, usually hundreds or even thousands of miles away.

**Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified.

We all want the best possible options; whether that be the best car, best house or best retirement annuities. Sometimes, we settle for “what they have” when making choices based upon local convenience. When it comes to your retirement, you should never “settle for what they have.”  As a result of the technology that exists today you can work with an annuity advisor without regard to distance one who understands your objectives and can help you identify the best possible options for a safer and more comfortable retirement. Designing a portfolio for retirement should mean a transition from an accumulation advisor to a retirement income advisor. Just like you would not let your local general practitioner perform open-heart surgery on you – you also should consider consulting with a specialist when the challenge of retirement is upon you.

Technology now makes it possible to work face to face with the best retirement and annuity advisors having any distance reduced to just a couple of clicks .  This may seem like a radical idea to a few; but for many, it has been nothing more than best practices. Once folks grasp the concept of a financial custodian as the actual caretaker of their money it then becomes much more important to locate a true expert who specializes in annuities so that their initial plan is done absolutely right the first time (with no do-overs!).

According to Investopedia the definition of a “Custodian” is:

A financial institution that holds customers’ securities for safekeeping so as to minimize the risk of their theft or loss. A custodian holds securities and other assets in electronic or physical form. Since they are responsible for the safety of assets and securities that may be worth hundreds of millions or even billions of dollars, custodians generally tend to be large and reputable firms.

So who do you want holding your assets, the advisor or the custodian? If you said the advisor — We cannot help you.

Lastly, who do you want helping you chose the optimal outcome for a safer, more secure and comfortable retirement? The local generalist or an an advisor that specializes in annuities?

Transcription:

Dick: Hello I’m Dick.

Eric; And I’m Eric and we’re the annuity guys.

Dick: Eric, are folks crazy to go out on the Internet and actually hand their money to an annuity specialist?

Eric: They must be crazy for handing it through… for shoving it through the disk or drive. That’s the misnomer; people say I got this chunk of cash; you want me to give it to somebody?

Dick: and folks feel like they’re doing something unusual or something that’s crazy; but when you really start to analyze it in terms of where that money goes and how that money is used effectively for their purposes, it always goes to some other place. It goes to a custodian – a third party. The advantage to working with someone on the Internet that is a true specialist is exactly that.

Eric: You can work with the best versus just working with somebody that’s around the corner because they’re there and I think that’s the challenge most people have to overcome. The reason this topic came up is people often calls us; we’ve referred to an advisor to them; why did you not refer the local guy?

Dick: Well, we love to.

Eric: First of all…

Dick: We’ve tried that.

Eric: We would rather refer the best guy and I’ll tell you what, in our practice we redefine local. Local is not just in our neighborhood; local is fifty states.

Dick: Yes, because local is as quick as a click away.

Eric: That’s right.

Dick: We can talk to an advisor; I can talk to an advisor in Texas; Allen or Rob. I can talk to them faster than I can get you Eric.

Eric: That’s right. A lot of times we can say “hey, Paul…” and Paul is five dials away and me, I’m just stuck behind the door at the back.

Dick: Eric! But that is the truth. And what we got to come back to folks is that technology today has changed everything. It’s all leveled the playing field. You no longer would consider looking around for someone to do an organ transplant locally or you know a serious heart operation or you name it. When it comes to medical elective surgeries, you’ll shop. You get on the internet. You do your research and you jump on the airplane a go where it’s best, and next to…

Eric: Well I was going to say how is retirement planning starting now? Typically with you setting up a 401K or retirement planner or your employer, it’s not like those dollars are just sitting on your bosses top drawer You’re literally setting up those accounts. Most often, they’re configured and then you’re in-charge in making the changes; you’re logging into TD Ameritrade or fidelity or TRowe Price; and you’re manipulating those accounts. Those dollars are not sitting right there; you’re working with a place that’s giving the tools to be more efficient, more affective. The planning tools are there; everything’s online so you have immediate access.

Dick: Right.

Eric: The same as…

Dick: Well, there’s been this consolidation in the annuity industry which is very similar in a sense that everything is coming down to the expert; down to the specialist; down to that aggregator or the person who has the greatest access and availability; and works with more folks and sees more things. And their specialization, their abilities continue to grow and increase; and the local person unfortunately doesn’t have that same advantage.

Eric: Right and we’ve seen many advisory and we always call them accumulation specialists that have done a great job helping you build up your savings to a certain stage. Now it’s time for retirement, well you’re accumulation specialist may not be the same guy that’s going to help you with retirement.

Dick: It takes whole different skill set. And I come back to this whole thing about the healthcare. When it comes down to choosing a specialist, I look at financial situations in people’s lives is being on par, it’s somewhere up there with those health care decision. This is going to be your entire retirement and if you don’t work with somebody who really knows how to get it right in the first place, a having that local guy is not necessarily going to be the best answer.

Eric: Yes and I guess I had never thought about it being heart surgery probably don’t get to do too many do over. They take the one out…

Dick: There’s only one shot.

Eric: Retirements much the same way. You want to compare the best way the first time. So working with somebody the best people possible should be first and foremost in your retirement planning mindset than necessarily working with the guy around the corner.

Dick: Right. And Eric when it comes to referrals, we do work with some folks from our website and we have our local practice but when it comes to referrals we’ve had to basically do the same thing. We’ve had to choose the best of the best!

Do Fixed Annuities Beat Bank Interest Rates?

By

Ever since my days of playing the board game of Monopoly, I have wanted to beat the bank. Remember drawing the card that said “Bank Error in Your Favor”? Collect $10…. 10 bucks – sweet and no jail time either.

Nowadays, it seems nearly impossible to beat the bank — unless you are talking about their interest rates paid to a saver!

Retirees have been pummeled by an artificially depressed rate environment which filters down to interest offered by banks. Good thing, there are alternatives to traditional bank rates paying next to nothing. Insurance companies and the payments on annuities have also dropped off, although they still manage to consistently offer substantially better yields than their bank counterparts.

So, do fixed annuities beat bank interest rates? Simply compare and you will see that they do quite handily!

Is now a good time to place money into an annuity? Watch as the Annuity Guys® -Dick and Eric, discuss how the political and economic decisions of today impact annuities and retirees.

**Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified.

The Annuity Guys® believe a lot of the future economic impact will be based upon the decisions of Janet Yellen, read more about her in this Washington Post Ariticle.

Nine amazing facts about Janet Yellen, our next Fed chair

By Dylan Matthews

Janet Yellen will be appointed Fed chair tomorrow. Neil and Ylan already wrote the definitive profile of her, but here are the main things you ought to know going into her confirmation hearings.

1. She is perhaps the most qualified Fed chair in history.

Paul Volcker is the only Fed chair who even comes close to Janet Yellen’s level of experience.

Just look at the competition. When he was appointed chairman, Ben Bernanke’s only prior government service was three years on the Fed board and six months as chair of the Council of Economic Advisers (CEA). Alan Greenspan had three years as CEA chair.

Yellen, by contrast, has served for three years as vice chair, headed up the San Francisco Fed for six years, ran the CEA for two years, and before that did a three year stint on the Fed Board of Governors. She also did a stint as an economist at the board in the late 1970s, for good measure.

Only Paul Volcker — who had a multi-decade career at the New York Fed and the Treasury — even comes close to that, and he had nowhere near as much exposure to the highest echelons of the Fed system as Yellen has. If experience is your main criterion, Yellen is hard to beat.

2. She’s been a powerful voice for the unemployment hawks on the Fed.

In various speeches — perhaps most notably at the AFL-CIO — and in Fed deliberations, Yellen has been clear that she thinks subpar growth and too high unemployment are the biggest problems facing the Federal Reserve. “Maximum employment,” she has emphasized, is the main goal of the Fed at this point in time. In her words, “With employment so far from its maximum level and with inflation currently running, and expected to continue to run, at or below the [Federal Open Markets] Committee’s 2 percent longer-term objective, it is entirely appropriate for progress in attaining maximum employment to take center stage in determining the Committee’s policy stance.”

3. But she’s more than willing to crack down on inflation when the situation requires it.

As Evan Soltas and Matt O’Brien have noted, Yellen is plenty hawkish when the situation requires it. In the mid-1990s, when she served on the Fed Board of Governors, she made it clear that she thought unemployment was dangerously low, low enough that employers have to hike wages, which in turn leads to higher prices, i.e. inflation. “We have an economy operating at a level where we need to be nervous about rising inflation,” she said at one meeting. “We can’t dismiss the possibility that compensation growth will drift upward, raising core inflation and in turn inflationary expectations. This is a major risk. Obviously, we need to be vigilant in scrutinizing the data for signs of rising wages and salaries.”

So inflation hawks, take heart — if and when it’s actually worth worrying about inflation, Yellen will be ready to handle it.

4. She’s pretty darn good at predicting where the economy’s headed.

Yellen’s predictive record is the envy of the Fed. As Ezra noted, she was one of the few voices at the Fed in December 2007 warning that recession could be around the corner. At a time when most thought the worst of the subprime crisis was over, she was skeptical. “The possibilities of a credit crunch developing and of the economy slipping into a recession seem all too real,” she warned.

It was far from the only time she got it right when her colleagues didn’t. Indeed, an analysis by the Wall Street Journal revealed that Yellen had the best predictions of any Fed policymaker in recent years. [… Read More at the Washington Post]

Transcription:

Eric: Hi, I’m Eric.

Dick: And I’m Dick. We’re the annuity guys.

Eric: And we’re going to examine today whether or not fixed annuity rates, will they’ve really beat bank interest rates?

Dick: You know Eric, to set the stage for that a little bit, we’ve got a nomination coming up here of Janet Yellen…

Eric: Ohh, so Uncle Ben, we’re throwing out Uncle Ben way and bringing her in?

Dick: New Federal Reserve Chairman and I think that we have to talk about where interest rates have been and where I think that they’re going to go, and then answer that question.

Eric: My general belief and I’ll start with – typically you see annuities are paying a higher return than banks are.

Dick: Well, historically.

Eric: Historically. So you’re fees are here and traditionally annuities are going to pay somewhat higher

Dick: But right now; the savers, the retirees, the folks that have been diligent in putting their money away – preparing for this time in their life…

Eric: welcome to the penalty mess… you no longer being treated like royalty.

Dick: So, we got this upside down world now where you’ve done everything right and now you get penalized with very, very low interest rates; and it would appear appearances that we’re building a nice bubble up into the stock market and just a very securities where that money is flowing instead of into savings nationally. Who would want to put money in a bank account that’s getting…

Eric: That’s getting zero…

Dick: Half of percent, a percent…

Eric: And people don’t really think about these terms but when put money into a CD or a money market account, you’re actually losing money because the effect of inflation is actually eroding what’s there. Your spending power is decreasing every year.

Dick: And folks who would maybe otherwise not put money in the market? They have no place to put their money that can earn anything. So, they’ll maybe take more chances and go a securities route. And that’s where we do find a lot of folks will turn to annuities and again looking for “hey, what’s got at least some comparison in terms of safety but gets a better interest rate?”

Eric: There’s a misnomer a little bit about fixed annuity rates because a lot of times; it’s going back to the term fixed; they tend to think the annuity rate is the same every year when they start out. It’s not necessarily always that case. Your first year rate is fixed and then the insurance company goes back to the next year with another year fixed-rate. Now, those rates can change already at all-time lows, would not be advantageous to say select an annuity where the rates could actually…

Dick: where you get a good initial rate. We call it a teaser rate or introduction rate. But they ask the idea that your rates could increase that does have an attraction to some; and then to others, they want that concrete, that absolute **guarantee that if I put my money in here I’m going to at least get XYZ. And, it would be the CD style or the multi-year **guaranteed annuity.

Eric: The nice thing is annuities have that flexibility in saying “hey, if you want that same rate **guarantee over a period of time, that’s an option.” If you think that interest rates are going to come up and you just don’t have another place to go, well, here’s a place where you can park money and get a market return each year based on what the companies willing to offer based on the market condition.

Dick: Yes. So, it can go up, but conversely, it can also go down. Well and back to that we’ve started with originally discussing where rates are going; with Janet Yellen, being the nominee for the Federal Reserve Chairman to replace Ben Bernanke; the concern is that she has a lot of the same strategies and thoughts, she’s going to follow that same line to pumping a lot of money into the economy, artificially holding rates down trying to pump up employment; and this is the biggest experiment we’ve ever done with monetary policy on this level that could really backfire on us in a big way. It does appear it’s going to hold rates down for a long time.

Eric: Well and I think the statement that’s been made by the Fed that says “until we get to an unemployment level of 6.5, below that level we’re going to keep rates where they’re at.

Dick: That could be a long, long time.

Eric: And we’ve talked to people consistently. They’re on the sideline; they’re park in cash, they’re park in zero percent basically returns because they expect rates to go up. They just can’t foresee this poor rate environment lasting but we’ve got people that are basically in charge of all rates telling us they’re going to keep them here until we get to this.

Dick: And Eric, this is why it does make sense, I believe, just financially – just doing this simple math; that if you keep money parked at a half of a percent and you got the opportunity to earn 3 percent or three and a half percent or something of that nature; by putting it in a shorter term type of an annuity and you made all those gains for the next year or two to three years before that rates tend to go back up; so, now if they do go up a little bit higher than your three, three and a half percent; at least you didn’t lose anything during those years. You had your money working and there’s just that nice offset to getting your money working today and then knowing that you can still do something later.

Eric: Well and I’m a big fan of laddering. I talked about laddering. In fact, I talk about laddering MYGA’S in the terms multi-year **guarantee annuities. We’ve got decent rates at five, six, seven percent. Well, five, six, seven years…

Dick: I was waiting where you’re going on that one.

Eric: But looking at those, by staggering those terms, you have money becoming available. It may take some shorter terms now but always having kind of that circular nature. Rates when they change are not just like flipping a switch and all of a sudden it’s going to be 5 percent tomorrow…

Dick: Right.

Eric: You’re going to see gradual changes. It’s best to get money in a place right now where you’re getting at least a competitive return to combat inflation and having that ability to kind of just keep recycling those ladders as they come available.

Dick: I agree and a lot of folks who have done that for many years have CDs and other types of banking instruments; and so, using them with annuities should not be anything unusual. And right now, it is a fact that annuities are considerably higher than bank rates, and there are some shorter-term annuities that give you a little more flexibility in the event that the rates do eventually take off.

Eric: I look at the average 5-year CD before we started. We are at one point three is the average.

Dick: And we’ve seen recently three, three and a half percent from five year annuity.

Eric: MYGA style. So, there are better options available…

Dick: Than the banks.

Eric: In my opinion.

Dick: Thank you.

Government Shutdowns Affect Annuities

By

Can you feel the impending doom of the government shutdown?

Every night, it seems that the media cannot wait to tell us how bad it will be when it happens – and whose fault it will be. One talking head tells us the sky is falling followed by a response from another talking head telling us that it is not likely that we will let the sky fall all the way – because no one in their right mind really wants to see that happen.

So, rather than spread the doom and gloom, the Annuity Guys® look to answer the questions that really matter to people who are getting ready to retire and those considering annuities for a portion of their retirement.

Watch as Dick and Eric discuss:

  • What is going to happen to your retirement if the political wrangling in Washington continues?
  • How would a federal government default affect bonds and annuities?

 

**Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified.

Obama Says Real Boss in Default Showdown Means Bonds Call Shots

By David J. Lynch and Cordell Eddings | Bloomberg

President Barack Obama knows who is the boss: the bond market.

“Ultimately, what matters is: What do the people who are buying Treasury bills think?” the president told reporters this week, when discussing measures he could take to end the threat of a historic default on the nation’s debt.

Even with the U.S. budget deficit down by more than half since 2009 as a percentage of the economy, the Congressional Budget Office says the government this fiscal year will need to borrow an average of almost $11 billion each week. That’s why Obama is so sensitive to what investors will tolerate.

“The market is the final arbiter of any policy, the ultimate barometer and enforcement mechanism,” says Russ Certo, a managing director at Brean Capital LLC in New York. “The market holds risk-takers and policy makers accountable.”

After weeks of confidently expecting a resolution of the standoff in Washington over the government shutdown and the debt ceiling, bond investors this week began to betray nervousness in their approach to short-term government borrowing.

The yield they demanded at the Oct. 8 auction of four-week Treasury securities almost tripled from a week earlier, Treasury Secretary Jack Lew highlighted in testimony before the Senate Finance Committee yesterday. The government was forced to pay 0.35 percent for four-week borrowings, up from 0.12 percent.

Endorsing Deal

The White House yesterday endorsed a short debt-limit increase with no policy conditions attached, signaling potential support for a Republican plan that would push off the lapse in U.S. borrowing authority through Nov. 22 rather than Oct. 17. Rates for all Treasury bills maturing through Nov. 14 fell in response, while those with due dates between then and Jan. 2rose. At a meeting with Republican leaders later in the day, Obama neither accepted nor rejected the party’s plan. The two sides will continue discussions.

Obama’s deference to bond investors is reminiscent of the last Democratic president, Bill Clinton, whose economic agenda in 1993 was eclipsed by demands for deficit reduction. The belt-tightening was followed by four straight budget surpluses later in the decade, prompting Alan Greenspan, the then-Federal Reserve Board chairman, to predict the end of the Treasury market. Bond buyers’ clout ebbed.

More than a decade later, surpluses are a fading memory and the bond market has regained its swagger. Yet unlike in the Clinton era when the danger of rising yields kept government spending in check, the market now is exercising discipline only after several years of record federal outlays and borrowing.

‘2008 Event’

“The one market that is behaving more as if a 2008 event is around the corner is the T-bill market — one must wonder if this is the proverbial canary in the coal mine,” David Rosenberg, chief economist at Gluskin Sheff in Toronto, wrote to clients this week.

Investors’ sudden awareness of the danger in Washington also can be seen in the difference between what banks pay to borrow from each other and the yield on one-month U.S.government debt. This so-called TED spread turned negative this week for the first time since Bloomberg began collecting such data in 2001, meaning investors regard banks as a better credit risk than the U.S. government.

Jack McIntyre, who oversees $44.5 billion at Brandywine Global Investment Management LLC in Philadelphia, said slow economic growth, low inflation, and accommodating central banks explain why 10-year Treasury yields are little changed from Obama’s first month in office, even as federal borrowing has soared. […Read More at Bloomberg]

Transcription:

Eric: Hi, I’m Eric.

Dick: And I’m Dick. We’re the annuity guys. And Eric, big government shutdown.

Eric: Government shutdown. We’re talking about right now obviously the United States is kind of imperil I guess where the people is like threat… the looming…

Dick: We’re on the threshold… we’re on the brink of disaster…

Eric: That’s right. Here comes the default, we’re all going to the heck of a hand basket. You know, we’ve already seen what happened in Greece and all of Europe over the last couple of years…

Dick: Which is very real and stronger markets into total mess and we’re feeling a little of it.

Eric: Yes. So, the threat of default a lot of times we go through this political pressure in the economic market and what we see is how they react and they keep on trying to anticipate what they think the government is going to do…. and I think we finally saw the first the market is kind of blink just here recently and it’s like they said “I don’t know if I want to own your death?

Dick: And political will tends to waiver very quickly and we were reading an article on that this morning; but political will is very quickly dictated to by the markets and politicians think that somehow they’re going to dictate a policy just based in a vacuum of what they want and they realize real quickly that they can’t do that.

Eric: Well, and I guess we should get a little bit history when we start talking about annuities and how annuities are impacted by bonds, it’s kind of a mixed bag really because you would toy to think when bond rates go up so do the rates on annuities which is generally because you have insurance companies are buying bonds to basically pay off their annuity holder.

Dick: Yes.

Eric: but when you have annuities that are ricocheting up and down and you have instability in the market, that’s really what makes a lot of people nervous.

Dick: Right. Well and the annuities, generally speaking Eric, what they do so well is they insulate against the volatility of the market and the risk in that is in most portfolios, and as you well know when you go back to the just the standard portfolios that we’ve all been recommended is generally everywhere all over the internet… you need a mix of bonds, you need a mix some stock, and just talked about it regularly.

Eric: Yes, just a rule of thumb – it’s all based of your age, you take your age and subtract if from a hundred and there’s your mix of bonds and equities. I’ll be honest. I’ve been having conversations with people telling them that they may want to consider eliminating some of their bond possessions – maybe all of them – and replacing them with annuities for the very reasons you’re just mentioning. That when you look at you know, you can eliminate the market declines in this kind of pingpong effect… you don’t have to worry about default risk because you own the annuity, you’re not worried about the bond defaulting or the federal government not paying its debt… and they got couple bonuses like for life…

Dick: Oh yes, that will be nice, why not?

Eric: And how about not having initially pay a management fee to somebody that’s managing a bond portfolio.

Dick: Well case in point Eric, go back to when the market took the big nose dive or 2008 the Great Recession, well, what do we think? We thought that based on conventional wisdom if we have at this stock bond mix, then sure the stocks are going down but the bonds are going hold us up!

Eric: Right.

Dick: What happen? It all went down. So now, here we are in probably the most vulnerable position potentially in all of history but at least in recent years – the last century, where the bond markets are facing this inverse relationship to interest rates were interest rates have nowhere to go… but straight up and what’s going to happen to the bottom market, to the yield?

Eric: Who wants to own a one percent bond when all of the sudden they’re going start to pay two percent or 3 percent? Nobody’s going to be able to get rid of those bonds!

Dick: Yes, it’s a hot potato. And why not let, you brought it up… why not let the annuity companies manage that risk because that’s what insurance companies do best. They manage risk and they basically hire the cadre de army of managers that’s needed to manage bond risk.

Eric: Right. They’ve done this for hundreds of years.

Dick: And they do it long-term, they’re not in it for the short-term treasury.

Eric: It’s just not for your lifetime which sounds a little funny but they have managed it for multiple lifetime. So, they look much bigger much larger…

Dick: Some of these companies, one in particular I’m thinking of, survived over the last three hundred years and it’s a rated A company today…

Eric: Couple World War and…

Dick: France take over… Napoleon Bonaparte… and the list just go on and on… So, the truth of the matter is that government shutdowns; rather they’re perceived, they’re real; the austerity measures we’ve seen in Europe, they have a dramatic effect on interest rates and interest rates have a dramatic effect on annuities; and interest rates have a dramatic effect on volatility in the market.

Eric: So, let’s put this in summary, I guess. Is it a good thing to hold an annuity or being an owner of annuity when there’s a government shutdown?

Dick: I think that that would be where I would want my portfolio to be; a portion of it anyway in annuities – a foundational portion – so that when these kind of things happen, which they’re going to or something new that we’re always blind sided with something new…

Eric: That’s something that’s never happened before…

Dick: We think we’ve got it all figured out, we’ve got all the stress tests then low and behold the next crisis comes along that blind side us… that’s why it make sense to have a portion of the annuity – a foundational portion, so that when these things happen you can weather the storms without stress… sleep well at night…

Eric: Some safety, some security, some annuities.

Dick: Agree.

Choosing a Fixed Index Annuity

By

All fixed index annuities are hybrid annuities – fact or fiction?  Fiction!

Don’t let the sizzle fool you. You can get a fixed index annuity without an income rider. Why would you do that? Why pay a fee for a service you will never use?

Typically, you shouldn’t upgrade your annuity to a hybrid style unless you know you want the lifetime income **guarantee while still maintaining majority control.

A base FIA (fixed index annuity) offers the ability to grow based upon the performance of an index while not going backwards. Your principal is never at risk and to clear up a popular misconception – your money is never actually invested in the index itself. With a fixed index annuity, the insurance company assumes all investment risk and while you may be able to participate in the gains generated by an equities or commodities index your dollars were never invested in any of those securities.
Watch as the Annuity Guys® – Dick and Eric, report on the fixed index annuity to help you evaluate if this type of annuity would be a good fit for your portfolio.

[embedit snippet=”video-specialist-button-index”]

 

**Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified.

There are pros and cons to any financial product and fixed index annuities have their detraction’s, such as cap rate, participation rate, and surrender terms. But if you are looking for an option that allows for better than average safer interest growth with no investment risk, check out a fixed index annuity.

Worried about interest rates impacting your bond portfolio? Check out this article.

Fixed-index annuities as bonds alternative?

By Robert Klein at MarketWatch.com

If you haven’t noticed, bond interest rates have been inching up over the past year. The U.S. Treasury 10-year index hit a 52-week high of 2.83% on Friday, up 1.29%, or 84%, from the 52-week low of 1.54% on Aug. 31, 2012.

Given the fact that market prices of bonds move inversely with interest rate changes, increasing interest rates generally translates to decreasing bond prices. An example of this is the Barclays U.S. Aggregate Bond Trust, which, after increasing 7.84% in 2011 and 4.21% in 2012, is down 3.27% year-to-date as of Friday.

Recent bond interest rate increases, combined with the prospect for continued interest rate hikes, have gotten the attention of investors, resulting in reduced bondholdings in many cases. Replacement investments have included dividend stocks. While this has provided an alternative source of income, i.e., dividends, it has also resulted in increased equity risk exposure, which may prove to be more problematic than simply remaining in bonds.

Many investors in the past few years have discovered a different strategy for a portion of their bond portfolio that retains the fixed income nature of bonds while offering protection from bond and equity market declines. It’s called fixed-index annuities, or “FIAs.”

 What is a fixed-index annuity?

A fixed-index annuity is a fixed annuity that offers a minimum **guaranteed interest rate and potential for higher earnings than traditional fixed annuities based on the performance of one or more stock market indexes. When purchased with non-retirement plan funds, unlike bonds, earnings grow tax-deferred. If a minimum **guaranteed withdrawal benefit (“MGWB”) isn’t built into the contract, a FIA can be paired with an income rider to give the annuitant(s) the ability to activate a lifetime income stream.

There are two types of FIA’s — single premium and flexible premium. A single-premium FIA is a one-time investment whereas a flexible-premium FIA allows for subsequent investments after your initial investment. With both types, you need to allocate your premium, or investment, between a fixed account and one or more indexing strategies. The fixed account pays a fixed rate of return for one or more years that’s generally higher than a similar-duration CD.

Indexing strategies provide the opportunity to earn interest based on the performance of a defined stock market index each contract year, with the Standard & Poor’s 500 Index being the most prevalent offering. Unlike a direct investment in an index where you participate in gains as well as losses, there are two basic differences when you allocate funds to an indexing strategy within an FIA:

1. If the index’s return is negative, no loss is posted to your account.

2. If the index’s return is positive, interest is credited to your account subject to a cap.

In other words, unlike bond and equity investments, you won’t participate in losses, however, you also won’t fully participate in gains to the extent that the performance of a particular indexing strategy exceeds that of a defined cap.

When do fixed-index annuities make sense as a bondholding alternative?

FIA’s offer several distinct advantages over bonds, including protection from market declines, elimination of bond default risk, participation in positive performance of stock market indexes, tax deferral in non-retirement accounts, sustainable lifetime income with a MGWB or income rider, investment management simplification, and elimination of investment management fees on the portion of a managed portfolio that’s invested in FIA’s.

They aren’t without their disadvantages, however. [Read more from MarketWatch]

Transcription:

Dick: Hi I’m Dick.

Eric: And I’m Eric and we’re the annuity guys; and today we’re choosing a fixed indexed annuity.

Dick: Yes, and Eric that’s referred to all over the internet as a hybrid annuity.

Eric: No, no…

Dick: Nowadays, nowadays it is.

Eric: Fixed indexed annuity without an income rider is the purest sense. Now, to get a hybrid style you got to have the income rider.

Dick: Well, that’s where we tend to talk in terms of hybrid combining a whole bunch of things into one annuity and mostly its marketing hype… mostly it’s just a sizzle to sell the annuity talking about hybrid; but it is in all fairness, hybrid does mean the combination of several elements into one thing. So, I would say that it is a hybrid in that sense but let’s get into the specifics of the fixed indexed annuity and what’s good about it?

Eric: Yes and I think usually the first thing I start with when someone asked me… its breaking down what’s an index? You know, really when you talk about indexing for an annuity, the most common one out there is typically are the S&P 500.

Dick: Dow Jones…

Eric: Now most people say “I’m invested in the market right?”

Dick: No…

Eric: What do you mean? It’s like an indexed mutual fund^ or…

Dick: And that’s the thing, it’s challenging to explain the folks is that you really are never invested in the market. You’re using that index just as an indicator.

Eric: It’s a benchmark…

Dick: A benchmark to know how much interest will be credited to your account. So, this is a completely safe, investment free product..

Eric: All risk-free.

Dick: Yes, yes it is.

Eric: And I always laugh because what I try to do is explain that you know; we can use the weather as that same index and say we start with the this time at eight o’clock today and at eight o’clock tomorrow we’re going to look at the same time… and if we’re up to two degrees, we’re going to credit you two percent. You can just use any kind a benchmark. In fact, there are indexes out there that use interest rates…

Dick: Commodities.

Eric: Commodities, gold.

Dick: Right. So, if somebody comes to you with an annuity, with this amazing new index; don’t get too excited because first of all even if that particular index could soar, you’re going to be limited on the upside up of it. That’s how these indexed fixed indexed annuities work is they give you the upside but they give you no downside. So you don’t get all of the upside.

Eric: And really, if you kind of peel back the layers of how an indexed annuity really works; the insurance company has something usually that it can purchase options on. They’re looking at options contracts something they can buy for pennies on the dollar;

Dick: If it doesn’t hit, it expires and throw it away; and when it hits…

Eric: It’s very good for everybody.

Dick: It brings some money in.

Eric: And they are willing to share some of those benefits.

Dick: Right.

Eric: So, like you were describing, what’s the negatives here? You don’t get the full upside typically that you’re going to get from a market participation; if you were just truly invested in one of those yourself but then also the inverse of that is you don’t go back…

Dick: Completely safe, completely secure. And when we say risk free, we have to qualify that a little bit. What we’re really saying is, it is a market risk free; and you know, there’s risk in anything we do. If it’s a US Treasury, there’s risk in it. So, in terms of measuring risk, it’s one of the least risky things you can do with your money.

Eric: Right. In explaining some other things that limits some of the upside; this is part of the conversation that if you ever look at an indexed style annuity, that there boards caps typically associated which is usually…

Dick: Limits your upside.

Eric: You may say you got the S&P 500 index with a cap of 5 percent. Well, that typically means the most you’re going to make in a year is

5 percent – so that’s your cap. The market may make up to twenty percent while you’re only going to get up to your cap.

Dick: Yes

Eric: And, there’s the participation rate which is how much of that index…

Dick: So, that if the market goes up 20 percent and I have a 10 percent participation rate, I’m at ten-percent of what the market went up or spread which in that case you agree that the first portion of what’s earned; it could be one percent or 5 percent, goes to the insurance company or is not paid to you. Let’s put it that way. And so consequently, you get anything above that. If you had a 10 percent spread, the market did 20 percent; you get 10 percent.

Eric: And those are really kind of need aspects to say… I can still participate in the upside I know I’m not going to go backwards. And as long as there’s no fee associated with the contract, you’ll never go… you never will back up and that’s what’s very attractive. And who would be interested in these types of annuities? It’s usually somebody who wants some growth but they’re just not willing to go backwards. If we look at the charts over the last ten years; and this is where indexed annuity companies are really putting those charts out, because if you remember back in 2008 when that market went boom…

Dick: Or 2009.

Eric: Well guess what your indexed annuities do?

Dick: No loss.

Eric: We did not go back thirty-eight percent…

Dick: A nice place to start from when the market started coming back up… stair steps up.

Eric: And that’s what’s nice. It locks in typically it resets if it’s an annual reset. Every year you started that new benchmark and all you do is…

Dick: Now Eric, one of the things; I am going to switch our subject here on this a little bit – and that is; that we see all the time and it kind of gets our higher up a little bit, 8 percent returns you know on indexed annuities; and pretty misleading is it?

Eric: Well, and that’s when people are typically selling the rider; they’re selling the piece that you’re going to pay a fee for usually, but it’s that sizzle portion that people want because they want that market-style return. So, eight percent **guaranteed… for future income

Dick: Or income account – it’s a kind of a virtual type account, does what it’s supposed to do – an excellent feature, excellent benefit, but consumers are generally confused and misled many times by that statement of getting an eight percent return on their money; safe, secure, **guaranteed; when that’s just factually not true or at least not the whole picture.

Eric: In effect, most people – and this is the conversation you have to have – that if you’re not looking at FIA or fixed indexed annuity for income you can buy it without the income rider. You don’t need that income rider…

Dick: No fees.

Eric: No fees, no charges. Now you’re not going to get that **guaranteed roll up for future income but you still have the option of receiving lifetime income from these annuities because you can annuitize.

Dick: Annuitize, right. So, when we start looking at the fixed indexed annuity and the benefits that that annuity will give as compared to other annuities – variable annuities#, immediate annuities. We start to look at we’ve got the upside; we’ve got safety and **guarantees. So the upside would be kind of similar to the variable annuity# that you’ve got some upside here. You don’t have the unlimited upside of the variable but you do have upside for a little better than normal growth should be; and then you’ve got the safety and security of the fixed annuity because there really is no investment for a fixed index annuity. Income – you’ve got the potential of what the immediate annuity has in two ways – you can annuitize or you can use the rider for lifetime income; and the beauty of using the rider for the lifetime income is back to what we call majority control of your money where you can actually not get your lump sum away like the immediate annuity, keep control of that money either to go on to the heirs or for a future use if there was an emergency.

Eric: So, I think we’ve broken down the fixed indexed annuity giving you some tidbits as to how the hybrid might be a part or add on to that that base chassis. I think we’ve got it covered all.

Dick: We’ve done it. Thank you.

Annuity Income Riders

By

What makes a newer hybrid style income annuity different from the industry standard, immediate income annuity? It’s the income rider!

Everyone who hears about a new hybrid style annuity is pitched on the the “sizzle”. I’m sure you have seen the advertisements – 5%, 6% or even 8% **guaranteed. Call today! Unfortunately, the limitations are not explained in most advertisements. So, there are many misconceptions about income riders and how they work.

Income riders are great options for creating a predictable retirement income in the future by using their roll-up **guarantees for lifetime income provisions.  They allow annuity owners the flexibility of creating lifetime income without having to lose cash value access by handing their savings over to the insurance company for income.

Annuity income riders are truly beneficial options when used in suitable ways, but they are not without certain trade-offs.

Video: Annuity Guys® Dick& Eric, discuss annuity income riders and how they can work to improve your retirement.

**Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified.


 

When Are Living Benefits Riders Right?

To truly determine if a living benefit rider is best for a retirement plan, it is important to understand exactly what one’s objectives are. For example, certain questions should be answered, such as:

  • Does the annuity income stream need to start soon or at some future date?
  • How much income will be needed?
  • Is it important to leave money to heirs?
  • Is long-term care spend-down a concern?
  • How much control should be maintained over the money?
  • Is outliving income a concern?

Once the answers to these questions about a retiree’s specific situation are determined, there is more information that must be gathered about the income rider being considered.

Some of the important rider questions are:

What is the roll-up rate? Many annuity income benefit riders offer a **guaranteed rate of growth, or roll-up, or minimum floor of between 5 to 10 percent. This roll-up rate is the **guaranteed annual rate at which the income base will grow. Therefore, if an annuity with a contribution amount of $100,000 plus a bonus offers a ten-year income rider with an 8 percent annual compounding roll-up, then the income base could be $215,892 at the end of ten years. Then, at the end of the ten years, the income stream from the annuity would be based on an annual percentage income payout of the income base determined by the annuitant’s or joint payee’s age (using the youngest age for joint to determine the payout percentage) at the time that the payout phase began.

Is the interest being credited compound or simple? When comparing different types of annuity income riders, it is important to truly understand the type of interest being credited. For example, a 10 percent roll-up rate is typically going to be based on simple interest, and 10 percent simple interest is the same as 7.2 percent compounded for ten years.  After ten years the compounded rate grows much faster and larger.

How many years can the income base accumulate? There are many income riders that will not allow the income base to accumulate beyond ten years before the annuity owner must start taking the income payout. However, there are some that allow much longer accumulation periods.

What are the fees now, and can those fees increase over time? Many annuity income riders have current fees of between .40 percent and .95 percent. Some annuities may increase their income rider fees after a specified number of years, up to 1.5 percent or more

View some of our newest featured videos below from the country’s leading experts on successful retirement strategies and the pitfalls you will want to avoid!

Retirement should be an exciting new phase in one’s life. And just like any other aspect of life, how we embrace and prepare for this new phase will help determine just how secure and fulfilling this extended time period of our life will be.


Using OutCome Based Planning™ for Your Retirement

We practice and recommend a "Holistic - OutCome Based Planning™ process when considering annuities." This approach has the effect of balancing your overall portfolio so you can meet your retirement objectives by "first identifying the least amount of your investments or savings (if any) that should be considered for annuities." OutCome Based Planning™ analyzes and models multiple outcomes so you can clearly identify your best income and growth opportunities.

"The Annuity Guys will only call if you request help". Hence, when you are ready for specialized help we will be available.
"Working with an Experienced Fiduciary Financial Planner can help you Avoid a Trial & Error or Risk Based Retirement"

This type of approach does take considerably more time, effort and analysis which will show you mathematically the successful possibilities by comparing various outcomes rather than trying to sell or convince you of that "so-called one best solution." Clients frequently tell us that this process removes some of the confusion and emotion to help them objectively identify a better retirement plan; rather than just ending up with the most convincing salesperson or advisor.

When requesting help you can be assured of working with an experienced Annuity Guys' Retirement Planner who is independently insurance licensed and securities licensed as a fiduciary financial planner having access to the vast majority of annuity companies in helping you choose the best annuities using a holistic-outcome based planning approach. We consider the high quality advisor recommendations we make to our website visitors as a direct reflection back on our commitment to serve all client's with a high standard of excellence in financial planning for retirement.

Based on survey feedback on advisors from our website visitors, we eliminated about two-hundred local advisors and now only recommend a few that we consider experienced vetted Annuity Guys' Fiduciary Advisors. Many local advisors continue requesting us to recommend them as a vetted advisor. However, our reputation and future business is driven only by satisfied website visitors. So, unfortunately we've had to tell the vast majority of local advisors no, since we changed our business model four years ago. At that time we stopped trying to satisfy everyone with local advisors, we now primarily work with individuals who are comfortable using today's internet technology to their fullest advantage by working with a select group of vetted, experienced and knowledgeable Annuity Guys' Fiduciary Planners.


Fiduciary Retirement Review
Priority Mail - Free Shipping!Our Gift to You

After confirming your request for help and shipping address by phone, we will immediately send your FREE personally signed Library Edition of our popular Annuity Reference Book "The New Retirement" plus Fact-Filled, Full Video Access!


Selecting the Best Annuity & Retirement Income Advisor

Are you willing to work with one of our retirement and annuity advisors based on their experience and expertise as a first priority rather than being limited by a local or regional area? The good news is that technology has forever eliminated our geographical limitations and leveled the playing field for everyone! As a result of today's technological advances, all of us can now work confidently with experts in any field including personal finance. We are no longer confined by regional or local boundaries limiting our choices and ultimate success. A high quality advisor is now as close as a click or phone call away.

Video:"Choose a National or Local Advisor"?
"There is no room for trial and error when it comes to choosing MarketFree® Annuities or a Successful Retirement Planner."
When you think about it, your money is almost always in some other state with a custodian; whether invested in the market or with an annuity insurance company, the advisors competence is primarily needed when positioning your money initially. So working with a specialized expert in a financial discipline like investments or retirement planning is imperative. There are no undo buttons in retirement! Once the annuities get set up correctly, it is customary and more efficient for owners to benefit by having direct access to the issuer instead of having to go through the agent. And, of course any reputable advisor, local or national, is more than willing to assist their clients if needed after they are implemented.
Video:"Why These 3 Types of Annuity Advisors are Not Created Equal"
"There are no undo buttons in retirement so it is vitally important that you do it right the first time!"

We are fortunate to have a select few who we believe are truly the highest qualified advisors out of about two hundred licensed insurance agents that we eliminated. Your survey feedback is what helps us make these tough decisions. Our advisors have an independent financial practice, specializing in annuities and retirement planning, which helps ensure that you are given the best options available for your retirement planning.

Video: "How Much of Your Money Should You Consider Placing into Annuities"?
"It takes an experienced expert to know how to structure annuities for income, inflation, growth, return of principal, and tax advantage."

"Anyone can sell you an annuity; however, it takes a truly qualified and experienced advisor to know how to structure them for income, inflation, growth, return of principal, and tax advantage. Typically, there is not just one that can accomplish all of these objectives. It is how an advisor structures multiple annuities in balancing your total portfolio that makes it possible to achieve your most important retirement objectives."

Video: "How to Choose a Great retirement Advisor"?

Why Searching for the Best Annuities on Your Own Can be so Frustrating...

Almost everyone nowadays turns to the internet for answers on everything - from buying new widgets to researching just about everything under the sun; and finding the best annuity is no exception!At first, it may seem that researching will be straightforward but the more time you spend researching them, the more frustrating it can be. Why is this? First of all, it does not take long to realize that gimmicks abound - such as warnings and alerts from salesmen who just want your attention so they can sell you one or the "too good to be true" claims of 8% to 14% **guaranteed interest and of course the claim that you can get the full market upside with no downside risk! If you have done any research you have heard all of these claims in advertising which are mostly half truths and not fully explained.So how can you find the best annuities on the internet? The truth is... you can't! And what is even more frustrating is all the conflicting points of view from so called experts. There are well over 6,000 different annuities - all designed for different reasons, so is it any wonder that the deck is stacked against the average researcher or do-it-yourselfer. Add to that the fact that they pay high enough commissions to attract a plethora of both good and bad agents. This does not make annuities good or bad; they are simply a financial tool that truly benefit those who use them correctly.How can you find the best annuities for your unique situation?
  • Use the internet cautiously;
  • Work with a vetted and experienced specialist;
  • Do not settle for that one dubious best plan. Compare multiple Outcome Based Plans to decide on the one that is truly best for you;
  • Be keenly aware of scare tactics and hyperbole - avoid those advisors and websites;
  • Avoid websites that are focused on rushing free reports, rates and quotes to get your contact information they are rushing you to speak with them, instead, take your time and choose someone you are more comfortable with that works on your time-table;
  • Know the Five Vital Factors (listed above) that an experienced specialist must answer before helping you select the best options for your situation;
  • Watch this telling video "Avoid Annuity Gimmicks, Amateurs and Charlatans"...

Video: "Avoiding Gimmicks, Scams & Charlatans"

  ** Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. Annuities are not FDIC insured and it is possible to lose money.
They are insurance products that require a premium to be paid for purchase.
Annuities do not accept or receive deposits and are not to be confused with bank issued financial instruments.
During all video segments, Dick and Eric are referring to Fixed Annuities unless otherwise specified.

  *Retirement Planning and annuity purchase assistance may be provided by Eric Judy or by referral to a recommended, experienced, Fiduciary Investment Advisor in helping our website visitors. Dick Van Dyke semi-retired from his Investment Advisory Practice in 2012 and now focuses on this website. He still maintains his insurance license in good standing and assists his current clients.
Our vetted and recommended Fiduciary Financial Planners are required to be properly licensed in assisting clients with their annuity and retirement planning needs. (Due diligence as a client is still always necessary when working with any advisor to check their current standing.)


Site Terms & Disclosure

  1. All tools, videos or information visible on this website's pages, television, or other media are for educational and conceptual purposes only.
  2. Tools, videos or information are not to be considered investment advice, insurance recommendations, tax or legal advice.
  3. It is recommended that site visitors should work with licensed professionals for individualized advice before making any important or final financial decisions on what is best for his or her situation.
  4. Website comments are not considered investor testimonials those shown only relate to an insurance agent referral service, customer service, or satisfaction with the purchase of insurance products and are never based on any investment or securities advice or investment or securities performance.
  5. Please be aware that your feedback and compliments may be shared with our visitors or those that may be interested in our services we will never give out your full name or full address or phone number without your permission. By sending us your feedback & comments you agree to allow us full use in sharing your comments with others in public forums. Thank you for sharing.
  6. Media logos are not any type of endorsement, they only imply that one or more of the Annuity Guys have written for, been quoted by, or appeared on the listed news outlet, broadcast or cable channels, or branded programs for non-advertising and/or advertising purposes, to offer educational and conceptual information about retirement issues.
  7. Income is guaranteed by annuitization or income riders that may have additional costs or fees.
  8. http://www.annuityguys.net & http://www.annuityguys.com forward to https://staging.annuityguys.org. - Further all disclosures and information are to be considered as one and the same for any and all URL forwards, and these same disclosures and information also apply to all YouTube videos featuring Dick & Eric where ever they are viewed.
  9. MarketFree™ Annuity Definition: Any fixed annuity or portfolio of fixed annuities that protects principal / premium and growth by remaining market risk free.
  10. Market Free™ (annuities, retirements and portfolios) refer to the use of fixed insurance products with minimum guarantees that have no market risk to principal and are not investments in securities.
  11. Market Gains are a calculation used to determine interest earned as a result of an increasing market related index limited by various factors in the contract. These can vary with each annuity and issuing insurance company.
  12. Premium is the correct term for money placed into annuities principal is used as a universal term that describes the cash value of any asset.
  13. Interest Earned is the correct term to describe Market Free™ Annuity Growth; Market Gains, Returns, Growth and other generally used terms only refer to actual Interest Earned
  14. Market Free™ Annuities are fixed insurance products and only require an insurance license in order to sell these products; they are not securities investments and do not require a securities license.
  15. No Loss only pertains to market downturns and not if losses are incurred due to early withdrawal penalties or other fees for additional insurance benefits.
  16. Annuities typically have surrender periods where early or excessive withdrawals may result in a surrender cost.
  17. Market Free™ Annuities may or may not have a bonus. Some bonus products have fees or lower interest crediting and when surrendered early the bonus or part of the bonus may be forfeited as part of the surrender process which is determined by each contract.
  18. MarketFree™ Annuities are not FDIC Insured and are not guaranteed by any Government Agency.
  19. Annuities are not Federal Deposit Insurance Corporation (FDIC) insured and their guarantees are based on the claims paying ability of the issuing insurance company.
  20. State Insurance Guarantee Associations (SIGA) vary in coverage with each state and are not to be confused with FDIC which has the backing of the federal government.
  21. This website is not affiliated with or endorsed by the Social Security Administration.
  22. *"Best” refers only to the opinion of Dick, this site's author; or the opinion of Dick & Eric in videos and is not considered best for all individuals.
  23. *"APO” refers only to the Annual Pay-Out of annuities in the guaranteed lifetime income phase. *APO is NOT an annual yield or an annual rate of interest.
  24. AnnuityRateWatch.com, is only a linked to subscription service, which is not affiliated with this site, it supplies and updates all Annuity Rates, Features Ratings, Fees and Riders. AnnuityRateWatch.com's information is available in the public domain and accuracy is not verified or guaranteed since this type of information is always subject to change.
  25. Dick helps site visitors when help is requested. Dick may receive a referral fee as compensation from an advisor for a prospective client referral. This helps compensate Dick for time spent assisting site visitors and maintaining this educational website.
  26. Eric Judy is both insurance licensed and securities licensed. Eric offers securities as an investment adviser representative through Client One Securities, LLC.
  27. Eric purchases prospective client referrals from Annuity Guys Ltd. and may be compensated by commission for helping prospective clients purchase. Eric may also recommend these prospective clients to an advisor and earn a referral fee or a referral commission split.
  28. Vetted advisors refers to advisors that are insurance licensed and recommended based on referral experience from satisfied clients.
  29. Any recommendation of an advisor is only one aspect of any due diligence process. Each site visitor must accept full individual responsibility for choosing a licensed insurance agent/advisor.
  30. In the event that a recommended licensed advisor/agent is not considered satisfactory, Eric will make reasonable efforts to recommend other advisors one at a time in an attempt to satisfy a site visitors planning or purchasing needs.
  31. Dick is the website author and editor, Annuity Guys Ltd. is the website owner; Eric is a guest video commentator. Videos gathered from other public domain sources may also be used for educational and conceptual purposes.
  32. There is NO COST to site visitors when they are given an advisor referral or recommendation.
  33. By giving the us your contact information such as email, phone number, address and etc. you are giving your permission to be contacted or sent additional relevant information about annuities, retirement and related financial information. We have a NO SPAM policy.
  34. Accuracy of website information is strived for but is not guaranteed.
  35. Freedom from virus or malware is strived for but is not guaranteed. Website visitors accept any and all risk associated with damage to any computer for any reason when using this website and hold this website harmless from any liability.
  36. Use this website like the vast majority of websites at your own risk. No risk or liability of any type are accepted by any business entity or any of the information providers for this website.

Choosing an Immediate Annuity

By

In the golden era of career based retirements, everyone could count on a company paycheck for life in retirement. Unfortunately, in today’s new world economy, fewer and fewer employees are leaving jobs with defined benefits programs that take care of their income and health benefits. So what options do workers who have invested a lifetime of dollars into 401Ks and IRAs have for lifetime retirement income?

For those looking to create their own personal pension styled retirement, one of the options is an immediate annuity. The immediate annuity is often compared to a pension due to the similarity in how benefits are paid out and end; while both may have spousal provisions, it is typical for both to have benefits tied to a lifetime payout – where benefits end at death.

Watch as the Annuity Guys® look at the gold standard of annuities – the immediate annuity, including some of the options and strategies that people should know about when considering an immediate annuity.

[embedit snippet=”video-specialist-button”]

 

**Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified.

In the simplistic sense with an immediate annuity you give the insurance company a lump sum and in exchange the insurance company agrees to provide a payment stream for a set number of periods – or for the rest of your life.

An excerpt from the Annuity Guys® book “The New Retirement” covering immediate annuities.

Immediate Annuity Options

Traditional immediate annuities offer a fixed periodic payment in exchange for an initial lump sum of cash known as a premium. This type of annuity typically will not allow future access to the initial cash paid into the premium funding the immediate annuity. In essence, the cash asset or lump sum allocated to the immediate annuity is forfeited and is no longer accessible in its entirety. It is instead converted to a stream.

Throughout the years, there have been some modifications to the original immediate annuity design. Many of these annuity features – which may or may not be available on all immediate annuities or offered by all insurance companies, are discussed below:

Inflation Protection: With this feature, the immediate annuity income payments offer some form of a hedge against inflation. Here, the annuity owner may choose to have his or her income payments increase by a certain percentage each year, typically around 3 percent. Another choice may be to have the annuity income payments actually tied to an inflation measure by the use of a consumer price index. When either of these options are chosen, the initial payout of the annuity usually starts at a lower income level.

There are several different ways to structure an immediate annuity with regard to the income payment options. These options include:

Refund, Installment, & Period Certain Death Benefit Options: The refund option on immediate annuities has typically been either a cash refund or an installment refund, ensuring that at the annuity owners/annuitants pre-mature death the beneficiary will receive an amount of money that represents the difference between the initial premium and the amount of the income payments that the annuitant received during his or her life. These options, however, reduce the amount of the systematic income payout when comparing to life only with no beneficiary benefits.

Variable payments: With variable immediate annuities, the annuitant is allowed to direct the initial allocation into various investment options such as mutual fund^s – aka–sub-accounts. Therefore, depending upon the investment performance of the sub-accounts, the annuitant’s periodic annuity income payments could certainly go up or down.

Life only: A life-only immediate annuity can also be referred to as a straight life annuity. This means that the annuitant will receive the highest allowable annuity income payments based on his or her average life expectancy, regardless of how long that duration may be. At death payments will cease and all of the initial premium will be to the insurance company’s benefit or detriment based upon the annuitant’s actual date of death based on the life expectancy underwriting calculations.

Certain period: This structure is not considered to be a life annuity. Rather, the annuity payments will only go on for a fixed or certain period of time, such as five, ten, or fifteen years. Even if the annuitant is still living at the end of the stated time period, the annuity payments will cease at that time. However, should annuitant pass away within that time period, income payments will continue to be paid to beneficiary(s) until the period of time ends.

Life with period certain (or certain and life): This immediate annuity payment option structure is a combination of both the life and the certain period structures – meaning, the annuity will pay income benefits to the annuitant for life with a smaller income amount than straight life only. However, if the annuitant passes away before the end a specified period of time, of say ten years, then the beneficiary(s) will continue to receive income payments from the annuity until the end of that ten-year time period.

Life with cash refund: This can be considered a money-back **guarantee annuity. The income benefit payout is for life. If the annuitant passes away before all initial premium has been paid-out, the total amount of payments paid to the annuity owner will then be subtracted from the initial premium paid and the balance will be paid  to the annuitant’s beneficiary(s) in a lump sum payment.

Life with installment refund: This, too, can be considered a money-back **guarantee annuity. This immediate annuity payout option is similar to the life with cash refund option, except that the annuitant’s beneficiary(s) will continue to receive the monthly annuity income instead of a lump sum until the full amount of the premium has been paid back.

Joint and Survivor: This annuity income payout option will **guarantee that the income payments will continue for the lives of both annuitants. Along with this, period certain options can also be added. This particular payout option is mainly used with married couples in order to provide income as long as either one is still alive.

COLA SPIA: This annuity income payout structure has payments that increase or decrease by a floating percentage which fluctuates when tied to a consumer price index each year. In this case, however, the initial income benefit will likely be lower compared to those which are non-COLA (cost of living adjustment) annuities.

Read more on immediate annuities in the New Retirement – download the e-version today free.