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Can Annuities Help You Avoid the 2016 Crash!

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Can Annuities Help You Avoid the 2016 Crash?… Absolutely!

If you think like many Americans and some economic experts that a crash is coming in 2016 to the equities market and you would like to move some of your assets to a safer place, fixed and fixed index annuities (FIA) could be a viable option for those investment dollars. Fixed annuities and FIAs have the ability to offer **guaranteed rates of growth that typically exceed…[continued below video]

Video: The Annuity Guys, Dick and Eric, discuss how annuities can protect you in a market downturn.

**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.

[continued]… what you can find from any banking institution presently by two to six times their interest rate growth. Fixed index annuities allow for a participation in the upside of many equity indices without having investment risk from those indices should the equity market correct or even crash.

Many FIAs allow you to choose from a variety of growth options that allow you the flexibility of choosing a fixed interest growth rate in one year and the option of choosing index based growth for greater growth potential in another year. So, the majority of fixed index annuities provide for re-allocation annually based upon your individual preference or with some guidance from your advisor.

Should you take all of your money out of the equities market? For most people the answer is no. Historically the stock market has produced higher positive returns over the long haul… So as long as you have the time to recover from losses in a protracted downturn that will not impact your lifestyle or health, you may elect to keep money in the market and hopefully ride out the downturns. We are not fans of trying to time the market since repeated studies and most active management results have shown that it is virtually impossible to do so. However, we know that with fixed and fixed index annuities you no longer have to even try.  Since, you can get interest growth from a portion of a market index that is rising with NO market index downside risk.

Article from Seeking Alpha, January 7, 2016

Could This Be 2008 Again?

Summary

  • Investors are very nervous again, especially as they see another huge crash happening in China.
  • The current economic problems can be best observed in the energy and commodities markets, which have crashed.
  • However, the situation is very different from 2008, and this time central bankers will have no choice but to intervene before things get out of control.

People are starting to get nervous, especially when they are looking at another 7% crash in China. George Soros said it sounds like 2008 again. Of course, one day it will be the end of the world, at least financially, and many times there will be deep crises which will panic people so badly that they will feel like it is the end of the world. It is inevitable to have such episodes once in a while.

But can this time things get so bad that would be another end-of-world scenario like 2008? 2008 didn’t start well. 2016 hasn’t started well at all. If at least the start, or the first quarter, is to resemble 2008 then 2016 can have further to go, downwards (as can be seen in the chart of the S&P 500).

There are several worrying real issues out there to which we do not know what may be the outcome a few months from now. One is the economic and financial unraveling that seems to be going on in China. Another is the energy and commodities crash that seems to continue, at least for now. And what is actually most important is that asset valuations in some parts of the rich world are quite high, compared to historical levels, and can therefore easily fall to lower levels. […Read More at Seeking Alpha]


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When is Zero Good News for Hybrid Annuities?

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Have you called someone a “good-for-nothing” and thought you were being derogatory?

With hybrid annuities, being good for nothing in the bad years is actually one of the best features! There is a phrase in the hybrid annuity world, “zero is your hero”, and it is derived from the feature of fixed index annuities which allows you to participate in the upside of a stock market index without suffering any losses due to…[continued below video]

Video: Watch as Annuity Guys, Dick and Eric, look at the power of zero for retirement security.

 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.

[continued]…poor stock performance or even serious losses. For example; many hybrid style annuities are linked to the performance of the S&P 500 and when the S&P 500 was down over 38% in 2008, those indexed annuity holders were credited with a 0. Which would you have rather had, a loss in your $500,000 portfolio of $190,000 or simply zero gains and your $500,000 stays intact during that same time period? In 2008, you were most likely bragging about your zero – if you were that fortunate.

The next question when trying to determine if a hybrid or fixed index annuity might be right for you is what are you willing to give up in exchange for never having any losses due to market downturns? Would you accept a limitation on your growth potential? The answer for many retirees has been a resounding YES. The research shows that retirees who can avoid significant losses to their portfolio in the first 5 to 10 years of retirement have a great chance of never running out of money. The reason is simple math. For example, a couple with a $500,000 portfolio who can comfortably withdraw $20,000 out annually to meet their income need only needs a 4% annual average gain to maintain their principal balance and lifestyle without fear of running out of money. However, what happens if the market corrects and they lose 30% of their portfolio ($150,000) and they now have $350,000? Do they keep withdrawing the $20,000? Hoping and waiting for a market rebound – considering that they will need a market rebound of about 43% – if your portfolio has a loss, it takes an even greater return to overcome the loss to get you back to where you started.

Hybrid annuities help retirees take the risk of stock market loss off the table and smooths out the volatility of the markets. Fixed Index Annuities can offer solid growth allowing retirees to capture a portion of the market upside while insulated from market corrections. Are you are ready for “zero” to be your “hero” for a foundational portion of your portfolio?

Here is a similar article by Anton Hendler at Annuity123.

Pros and Cons of Fixed Index Annuities

“Beauty is in the eye of the beholder”, so the saying goes. So it is that with an article of this nature, it depends on who is writing it and that persons perspective as no two people will share the same opinion. So let us nail our colors firmly to the mast, so to speak, and share with you that we promote Fixed Index Annuities (FIAs) to our clients and are firm believers in their place in any Retirement strategy.

Now that we have our ‘disclaimer’ out of the way, let’s turn to the subject at hand. We will not even attempt to provide a comprehensive list here of all the pros and cons (in no particular order) but will merely touch on what we believe to be the major points and, again, these may differ from another person’s view.

Pros of Fixed Index Annuities

  • The power of annual reset. What this means is that every year on the anniversary of the policy, any gains in the market (based on the strategy which you have chosen and an index such as the S&P 500) will be credited to your policy and then ‘locked in’. So if the market goes down in the next year, not only will your value not go down (you will stay level) but the gains made in the previous year that were locked in are yours as well. This can be compared to a ratchet on a jack for your car. As you move forward (up) you are protected from slipping backwards (down) by the ratchet (click here to learn more about annual reset).
  • No downside risk. Following on from the first bullet, it follows that whilst you share in a portion of market gains (and these are locked in every year) you do not share in market losses. If the market goes down in any year, your prior year ‘locked-in’ value will stay level. That is, it will not go down or up, but will remain at the prior year’s value.
  • Sharing in the market upside. What one has to remember with FIAs is that you are not invested directly into the market. As such, you do not get the full amount of any increase in the market, but share in the growth in any year. Your growth is limited by devices such as participation rates and caps so if the market goes up by 8% and you have a 100% Participation rate with a 5% cap, then you will get 5% growth in that year. Funds are not invested by the insurance company directly in the market, but they buy options in the market. If the market goes up then the insurance company exercises those options and pays you your percentage of the increase. If the market goes down then the insurance company essentially ‘burns’ the options and you get nothing.
  • The power of zero. Getting a return of zero in a down year sounds, at first, like a con but it is a very significant pro. Take the example of a market that goes down by 20% in year one. In year two, you will need it to go up by 25% just to get back to where you were. So the power of staying level in that down year suddenly looks very compelling compared to taking a ‘hit’ and having to climb your way back up to where you were before you can start to show gains in your principal again. [Read more at Annuity123]


 

 

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

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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…]

 


 

1035 Exchange – Replacing an Annuity

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Keeping the taxman at bay may seem next to impossible these days, however with annuities the IRS/Congress blessed us with one strategy to maintain the tax-deferred status when we move from one annuity to another – the 1035 exchange.

Watch as the Annuity Guys® examine the proper use of a 1035 exchange.

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**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.

Before we proceed any further, we do want to make sure everyone realizes that we are not advocating for exchanges of annuities. Annuities are long term products designed for retirement and replacement of annuities can mean a loss in benefits and potential to incur surrender changes and fees. Consequently, we would recommend working with an annuity specialist who can provide you with specific benefits and shortfalls needed to be considered  prior to exchanging an annuity.

The most common time a 1035 exchange is employed is at the end of the contract term which typically runs concurrently with the surrender period. If the insurance company has reduced the benefits or **guarantees on the annuity, consumers will oftentimes solicit new quotes to see if anything better exists. If they are so fortunate as to find a new annuity with better benefits, the account owner can transfer to the new company without incurring any tax consequence by utilizing a 1035 exchange.

A 1035 exchange is typically completed by filling out the appropriate transfer paperwork with the new carrier.

Lastly, not every transfer qualifies for tax shelter under the 1035 Exchange. You, for the most part must transfer the same insurance product type for the same insurance product type. This means you can swap an annuity for an annuity or life insurance cash value for an annuity but you cannot trade an annuity for a life insurance policy since life insurance is tax free and not just tax deferred like annuities.

 

Should You Exchange Your Variable Annuity?

Courtesy FINRA

If you have a life insurance or annuity contract, you may have been approached to exchange it for a new model, one with better or the latest features. You need to know that even though tax law makes the exchange income tax free and the new contract may sound better for you, you may be losing—not gaining—if you make the exchange.

We are issuing this Alert because we have found investor confusion about variable annuity# exchanges, and we have brought cases where investors were investing in variable annuities# that were not suitable for them.

This Alert will give you information on how to determine if an exchange is right for you, and how you can find out what you need to know to make a smarter decision.

Some Background

You may know that an annuity is a contract between you and an insurance company where the company promises to make periodic payments to you, starting immediately or at some future time. You buy the annuity either with a single payment or a series of payments.

You should also know that annuity contracts come in three flavors: fixed, variable and equity-indexed. Fixed means that the earnings and payout are **guaranteed by the insurance company. Variable means that the amount that will accumulate and be paid will vary with the stock, bond, and money market funds that you chose as investment options. Unlike fixed contracts, variable annuities# are securities registered with the Securities and Exchange Commission (SEC). Sales of variable insurance products are regulated by the SEC and FINRA. Equity-indexed annuities (EIAs) have characteristics of both fixed and variable annuities#. Their return varies more than a fixed annuity, but not as much as a variable annuity#. So EIAs give you more risk (but more potential return) than a fixed annuity but less risk (and less potential return) than a variable annuity#. [Read More from FINRA]

 

How do you Choose the Best in Class Annuity?

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The latest issue of Barron’s proclaims to know and list the Top 50 Annuities. Being the Annuity Guys® that we are, we quickly located the article and tables to find out if they were right. What criteria would they use to choose the very best. Finally we would have the answer that all of our readers and callers need so desperately.

Unfortunately, their best in class annuities may do more harm than help.

Annuity Guys® – Dick and Eric, evaluate Barron’s Top 50 annuity article and their best in class annuity selections.

**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.

Don’t get us wrong, we are grateful that this publication largely dedicated to investing in stocks and bonds or other securities has dedicated some time to cover a financial instrument that should be considered for at least a portion of most retirement portfolios that need safety, income and modest growth. However, consumers hoping to find answers about the top annuities will only know a small part of the story. Their hypothetical examples only apply to a very tiny segment of the annuity buying population.

While we hate sounding like a broken record, you should know that with annuities there is not a “one-size fits all” model. Sure you can use a list like the one found in Barron’s to ask for a comparison, but an expert advisor who specializes in income and retirement planning will be more likely to come up with better annuity choices when your specific scenario is fairly considered.

Here is an excerpt from the Barron’s article that made us shake our heads sideways.

Top 50 Annuities By Karen Hube

The once-dominant variable annuity# is getting a bit of competition from cheaper iterations. These stripped-down products offer some surprising advantages, though.

Armand Baughman, 71, a retired Continental Airlines pilot of Valley View, Texas, has always viewed annuities as too complex, illiquid, and expensive to warrant his consideration. But last year, he socked $200,000 into a tax-deferred variable annuity#, calling it “the best thing since Cracker Jacks.”

What changed? As part of an effort to lift sagging profits after years of challenging market conditions, firms are giving the oft-maligned annuity a makeover: an ultralow-cost, variable annuity# that offers a broad array of alternative investments, including hedge funds, currency funds, managed futures, and other strategies.

Annuity companies are trying to make a comeback after years of struggling to remain financially sound under the cloud of low interest rates and high stock-market volatility. With annuity sales down 8.4% last year, to $211.8 billion, the lowest level since 2005, annuity providers are aggressively designing and marketing annuities that — like the low-cost variable annuities# — appeal to very specific investor goals or needs.

“For years, companies offered products that tried to do everything at once — give the highest rates, best liquidity, best income **guarantees, and benefits,” says Ken Nuss, founder of AnnuityAdvantage.com, which has free listings of fixed index and income annuities. “But that’s over. They’re getting better at fulfilling a specific goal more effectively.”

To help sort through a breadth of products, Barron’s surveyed annuity companies and industry experts to come up with the 50 most competitive contracts in popular annuity categories. The results, based on common investor assumptions and goals, are detailed in the table, right.

Low-cost variable annuities# with alternative investments earned a new category entry in the top-50 survey this year, thanks to the growing number of these contracts and their potential benefits to investors.

ANNUITIES, WHICH ARE TAX-DEFERRED INVESTMENT vehicles that allow you to turn on an income stream either immediately or years from now, come in two basic categories: Variable annuities have payouts that fluctuate along with their underlying investments; fixed annuities offer a **guaranteed interest rate for a specified number of years. [Read the full article at Barron’s]

Transcription:

Dick: Hello, I’m Dick.

Eric: And I’m Eric and we’re the annuity guys. Today Dick, we’re going to look at best in class annuities. Now, that sounds awfully high pollutant there. What’s best in class mean? Sounds like a horse racing term.

Dick: Well, Eric, one of the problems that we’ve had in our videos and we’ve been criticized at times; we had folks say…

Eric: No.

Dick: Why don’t you guys tell us what a company; which annuity and that type of thing? Well, let’s just give some disclosure here. Folks were in the most tightly regulated, most highly compliant industry; and if we start mentioning company’s names, we actually have to go out to get their approval first.

Eric: We need a lot more leave time to be able to tell you what the company name is.

Dick: Before we can do a video.

Eric: We have to get approved by the company and then they take about six weeks to banter back and forth; and then they come back, they usually say, no.

Dick: And then there’s another problem, if we start mentioning companies Eric…

Eric: Because it’s wrong as soon as we say it.

Dick: After we’ve said it, it’s wrong the next day. And that’s because the best in class annuities; Eric and I have certain annuities that we tend to favor or better than others, and certain companies…

Eric: It’s based off of historical performance that typically is better than others

Dick: But we may have a client one week that’s pretty similar to a client two or three weeks later; and we have to use a different product because some things either change with that annuity or that person’s situation is just a little bit different.

Eric: That’s right. It can be as simple as one is male, one is female. You would think there would not be that much difference?

Dick: So, what got us going on this subject today?

Eric: Well, It varies. I love them, but I hate them right now. You know it’s nice of an investment kind of publication that we typically think up to feature annuities in the top fifty annuities on the cover of that…

Dick: Well, they’re so biased. A lot of times they won’t even talk about annuities.

Eric: That’s right. So, we love the fact that they’ve decided talking about you which are the top fifty annuities. Now, I’ll have you know, they’re wrong.

Dick: Take it with a grain of salt and read it with a critical eye.

Eric: That’s right because as soon as I look at their list, I said “oh no!” Now, they had to make assumptions. They assume within their first section here that everybody two hundred thousand dollars exactly.

Dick: They’re all sixty years old.

Eric: Six-years-old and male. So, this list is probably very good for the time the article was written if you’re sixty and had two hundred thousand dollars. Now, if you’re 63 and female, the list is wrong.

Dick: Or all you have is two hundred thousand in your name; or what if you had a million to your name? All those variables change. Suddenly, that isn’t the right annuity because there’s other reasons you’d be doing this.

Eric: So, it did address some of the issues in the different pieces but we would tell you that when you first look at this, don’t assume everything here is going to apply to your situation. There’s typically not just one best annuity.

Dick: No! And then when you start talking about working with an advisor that really gets it, they’re going to take a much more sophisticated approach and it’s good not going to be one best in class annuity; it’s going to be three or four or five; and they’re going to have to all work together.

Eric: Right. It’s a balancing act of usually giving you an option. Maybe this one is lower rated but has a slightly better pay out for what your intention is.

Dick: Yes, yes.

Eric: This one has a higher rating but maybe slightly lower or may have to hold it a little bit longer…

Dick: This piece over here works well in a tax-free environment for growth and there’s the maybe starting a portfolio out of a good immediate annuity might make sense out there. So, again, being able to structure this properly, I would say to get best in class annuities, there’s no substitute for working with an expert.

Eric: And that’s where you rely on somebody in their expertise to define for you, what fits your situation. I know I sat down and run numbers and I’ve had what I thought was going to be the best one going in. And all of a sudden I said I run numbers and for this particular unique situation it had to be somebody that was exactly this year old and got to hold it for this long, one specific annuity all of a sudden jumps out of package you never expect. Nothing pay’s to go back and look at the analysis and…

Dick: Exactly. And it doesn’t hurt folks; never, never think that Eric and I are saying “don’t do your own research.” Look at the company’s ratings; get in our rate vault and look at all of the different annuities and the different features, and ratings, that type of thing; and do some comparison. But then, there comes a point where you do get involved with a an expert, an agent that works with these on a regular basis; and they’ll be able to look at the subtleties, the real differences and that’s where you really can find the best in class annuities.

Eric: And as we’ve spoken, there’s no reason why you can’t pull out a list like this and say “hey, what about company X here? I see that they were best in class on variance. What’s that look like?” The advisor can then run the numbers give you the idea of why what they’re proposing may be better or you know…

Dick: Eric, even with our expertise, we’ve had situations where somebody’s come to us and said “you know I was reading about this or that or whatever”; and maybe we haven’t even opened our eyes to something that they brought to us. And then we started utilizing it for other clients because it looks like they were right. You know, I’d like to think that we have a lock on all the knowledge but it’s working with people on a regular basis that keeps us on our toes and keeps us at the top of our game.

Eric: So if I’m looking for best in class annuity, where do I go?

Dick: You go first of all to our website…

Eric: Which you are here for a long time…

Dick: And you begin your research; and then you work with an expert advisor.

Eric: Yes and that’s the key; it’s getting the facts from somebody that works in this area all the time.

Dick: That’s right!

Are Annuity Commissions Too High?

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Most of the mainstream media decries annuities as bad investment choices sold by unscrupulous agents solely to earn high commission.

CNN/Money even states “annuities frequently charge other high fees as well, usually including an initial commission of up to 10% of your premium or investment”. The key word in this statement is “up to” – the majority of fixed annuities today are in the five to seven percent range if the agent elects to take the commission up front. It is important to keep in mind that commission on an annuity will not reduce the annuity’s account value. Licensed agents are typically paid commissions directly from the insurance company based on state regulation.

In this video Dick and Eric examine annuity commissions and how they compare across annuity types as well as looking at how these commissions compare to investment fees and commissions.

**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.


 
Here is a portion of the CNN/Money Article cited above…

How do I know if buying an annuity is right for me?

Typically you should consider an annuity only after you have maxed out other tax-advantaged retirement investment vehicles, such as 401(k) plans and IRAs. If you have additional money to set aside for retirement, an annuity’s tax-free growth may make sense – especially if you are in a high-income tax bracket today.

Annuities have some significant drawbacks. For one, you must be willing to sock away the money for years. If you make a withdrawal within the first five to seven years and you typically will be hit with surrender charges of up to 7% of your investment or more. Annuities frequently charge other high fees as well, usually including an initial commission that can be up to 10% of your investment. If you purchase a variable annuity#, ongoing investment management and other fees often amount to 2% to 3% a year.

These fee structures can be complex and unclear. Insurance agents and others who sell them may tout the positive features and downplay the drawbacks, so make sure that you ask a lot of questions and carefully review the annuity plan first. [Read More at CNN/Money]


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.


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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.)


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  9. MarketFree™ Annuity Definition: Any fixed annuity or portfolio of fixed annuities that protects principal / premium and growth by remaining market risk free.
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What do Annuities Really Earn? No Hype…

By

Apples and oranges – what do they have in common? Both are fruits!

Why would we start a discussion about annuity earnings with apples and oranges? When people start looking at annuities, they invariably want to compare them to mutual fund^s or other securities. Commonly, they will start the discussion about the merits of a particular annuity by asking about the “upside” or growth potential. Let us state this clearly – thinking of annuities as accumulation products by comparing them to securities is just plain wrong in the vast majority of scenarios. So let’s not mix apples and oranges.

Do annuities have growth potential? Sure, but do not decide to purchase an annuity expecting high single digit or double-digit gains, especially with today’s economic conditions.

Annuities are safety and security products that should be viewed in the light of their **guarantees. Dick and Eric examine what annuities really earn in this weeks video.

[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 addition to your questions, this weeks inspiration came from…

Behind the indexed annuity curtain

By Stan Haithcock at MarketWatch.com

We all saw the original Wizard of Oz movie when they went to see the powerful Oz and were totally in awe until the dog, Toto, pulled the curtain back to show that it was just some goober running a sound board.

That curtain needs to be pulled back on indexed annuities as well because “the show” is getting to be a little overwhelming on the lunch seminar circuit and with the increasingly aggressive online annuity promoters.

First of all, let me explain the details of an indexed annuity (also called an equity-indexed annuity, fixed-index annuity, hybrid annuity). An indexed annuity is a fixed annuity with a call option on an index, usually the Standard & Poor’s 500 Index. The vast majority of the call options are one year in length, but can be as long as five years. The S&P 500 index represents over 90% of the index option choices even though other index selections (Dow, Nasdaq, etc.) can be found in some product offerings. These call options allow you limited participation in the upside of the index (not including dividends).

When indexed annuities were developed a couple of decades ago, they were designed to compete with CD returns, not market returns. They were never put on the planet to be a pure growth product, even though they are sold that way by agents and the online annuity spammers. Realistic and historical (yes agents, these are also called facts) return expectations for indexed annuities should be around 3% to 5% annually. Those annual gains, if any, are locked in at the contract anniversary date, and then a new index option starts.

Please understand that indexed annuities are complex products, and the majority of agents are unable (or unwilling) to properly explain them and usually just focus on a few sizzle points. Below I have listed some of the positive and negatives of indexed annuities and where they might work within your portfolio.

Positives

  • Used with Income Riders for target date income planning

This is how I use indexed annuities for my clients. I also attach contractual death benefits or confinement care benefits when that is the ultimate goal.

  • Downside protection

Because your potential gains are attached to a call option, if the markets go down and the call option expires worthless at your contract anniversary date, then you will not lose any money. Agents use the phrase “Zero is your hero.” That’s a pretty goofy way to put it.

  • Gains locked in

This is a very good feature of indexed annuities. If you have gains from your index option, that gain is locked in permanently, never to go below that amount. Just remember that your upside potential is very limited, regardless of what your agent tells you.

  • Possibility to capture market dips

As an example, if the S&P 500 index goes from 1,300 to 900 in one year, your index option for that year would not credit any gains, but you would start the next index option year at 900 on the S&P 500.

  • Higher actuarial payout for income

Most indexed annuities, when used for lifetime income purposes with attached income riders, have a higher actuarial percentage payout than similarly structured variable annuities#. [Read More…]

Annuity Guys® Video Transcript:

Dick: Today we want to talk about annuities, and we want to get all the hype out of the way, Eric.

Eric: The hype? There’s hype in annuities? Oh my gosh.

Dick: Well, this was inspired by Richard out in Massachusetts, one of our folks that had used the website and we had given him a referral. He sent in a question that basically said, “You know, I’ve been looking at different blogs on the Internet, and they’ve talked about the return, and the annualized return doesn’t seem to be that high.” And that’s true, isn’t it?

Eric: This is where people have the challenge. When they first start looking at annuities, they’re coming from a world where they’ve been focused on accumulation.

Dick: Right.

Eric: When we look at the mutual fund^ industry, everybody talks about, “I did this return, 20%, 30%.” “Oh, I beat the S&P.” That’s the accumulation world. The focus there is on numbers, the return I’m getting.

Dick: Exactly. Right. Is there a little hype in that world?

Eric: Oh there’s a lot of hype. You know, glossy pages with the charts that go like this. Oh my gosh.

Dick: Well, and we can look at DALBAR studies that talk about the individual investor and what they actually do earn, and it’s down below 5%, considerably below 5%. So it’s all over the board.

Eric: But must people have been conditioned to focus on the return.

Dick: Of accumulated money. Right.

Eric: Yes. I’m making this much. I’m making this much. I’m getting this much. That’s not what an annuity is about. It’s not about taking and trying to grow the asset so much as preserve it, because you’ve already done the saving part.

Dick: You’ve already done the work. You’ve built the nest egg.

Eric: What’s the goal of saving? It’s future spending. Saving is really, in this case, future spending.

Dick: Right. So would it be fair, Eric, to say that an annuity is more about security and cash flow?

Eric: Yes. Yes, it would. I would say that would be fair.

Dick: So if we were to boil it down and just get rid of all the hype, and when I say “hype,” I mean the way its presented, it may not really be hype, but it does sound good. We talk about 7% rollups on the income account and 8%. W talk about 5% payouts and 6% payouts. But if we really got down to the life expectancy and drawing the income off an annuity . . . well, first of all, let’s just talk about an immediate annuity. What would the real internal rate of return be on an immediate annuity overall?

Eric: One, two percent.

Dick: Max. One to two percent.

Eric: My thing, when we start talking about annuities, and we’re doing it now, talking about rate of return, first question I have to ask you is: When are you going to die? Then I’ll tell you what your return is going to be.

Dick: Exactly. The insurance company has this figured out statistically, and they know that, overall, your rate of return on this annuity in a statistically generalized averaged sense is going to be in the neighborhood of a couple of percent on an immediate annuity. Right now, with today’s rate, even a little less than that. Yet billions and billions of dollars of immediate annuities are sold. Why do people do that?

Eric: Safety, security, cash flow. We’re going to repeat ourselves a lot here. If you’re going to be focused on return, don’t go here.

Dick: Exactly. I know we both have got a lot to say here. But one thing that comes to my mind is all of the sure bet things that are out there in the investment world, the things that you are told you cannot lose, such as Enron, Lehman Brothers. What are some others?

Eric: Well, GM was always the . . . I grew up in a world where they always said buy GM stock, and you never have to worry.

Dick: Right. Enron? Madoff? So these are things that all look good, but those are all followed by this caveat of past performance is no indicator of future results. We tend to gloss over that and say, “Oh, they just say that.” But that’s there for a reason.

Eric: Right. But it’s a risk-reward aspect. You’re chasing the reward there and are willing to take some of that risk. What we talk about when we look at annuities, we want to take that risk and diminish it significantly so that you have that safety, you have that **guarantee.

Dick: Yes.

Eric: And that’s what we’re focused on with annuities.

Dick: And that’s not for all of a client’s money.

Eric: Not all of your money. That’s right. Asset allocation, spreading the baskets out.

Dick: It’s a further diversification, another layer of protection and safety completely. And now if we get into the very popular indexed or hybrid annuity, there are a lot of things to talk about in terms of that income rollup and how it gets your income up to a certain level by a certain age, which would not be **guaranteed if you were in the market. You maybe couldn’t take that big of an income without depleting your principal much faster. So there is that aspect. But if we just talked about the overall rate of return of that hybrid annuity, we took it like some of these guys do, and they’re very good at their math and their spreadsheets. They spread it out and they show if you start a guy out at 60 years old and you defer him for 5 years or 10 years, with this 7% rollup, you turn it on, and he lives to age 90. What’s his return going to be?

Eric: Like two, three, four, five percent, perhaps. That would be on the high end.

Dick: On the real high client.

Eric: It depends on when you start.

Dick: Two percent on the low and maybe, like you say, four to five on the extreme high, but more like two to there percent would be like the max. They’re are part of the rule.

Eric: Part of what we’re looking at is we’re looking at pieces in today’s environment. Caps right now are structured around what today’s caps are.

Dick: Right.

Eric: So when we’re looking at things, we like to today’s numbers. Now, we expect caps will increase in the future. Can we **guarantee it? No.

Dick: No.

Eric: And that’s what, when we work with annuities, we really like to talk about **guarantees. Because if you’re satisfied with the **guarantee, then anything above and beyond is good.

Dick: That’s right.

Eric: And the same thing is true on the indexing side of these components. Look at what the **guarantee is. That indexing component offers a little bit of a bump. But, focus on the **guarantee.

Dick: Right. Well, folks, I think for today’s topic we want to thank Richard. Thank you Richard for that good question. Eric and I added something at the first of the year that you may not have seen on the blog site. So when you’re through with this, if you’d like, you can actually ask us a question.

Eric: That’s right. We’ve put it out there in a couple different spots. We encourage you . . . as we come up with topics, sometimes it’s nice to know what you want to actually hear about.

Dick: Right. We tried to dispel the hype here and get down to the real rate of return is and then talk about the real reason that you do an annuity and choose an annuity.

Eric: No hype, just answers.

Dick: Thank you.

Are Annuities Improving With The Economy?

By

Annuities have been on a significant growth upswing since the equities market started tanking in 2008. So if annuities were more popular when the market dropped, will they lose favor if the economy improves? Don’t tell the mutual fund^ industry, but it would appear that increased annuity allocations are here to stay. Since 2008, consumer surveys of retirees have shown over and over that sentiment has shifted… retirees are no longer focused on just maximizing returns but rather **guaranteeing that their retirement savings will last as long as they do. Dick and Eric look at some of the changes in the annuity marketplace and what those changes mean for you.

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**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.

Read the “Annuity Perspectives” Article by Jack Marrion, that inspired this weeks entry.

The End Of The Beginning

In recent months I’ve been looking at the fixed annuity space; from new products to changed older ones, at recent surveys showing how consumers feel about and are using annuities, at census data and at how economic variables are affecting everyone from the individual consumer to the carrier to the global economy. I’ve also talked with people in the annuity world that are disheartened by the events in 2012 and pessimistic about the future of the industry. And yet as I did more research I became more optimistic. In fact the phrase “the end of the beginning” kept resurfacing in my thoughts.

In the early days of World War II Britain experienced a series of defeats. However, in the fall of 1942 they defeated Erwin Rommel’s Afrika Corps at El Alamein and Egypt was saved from invasion. Shortly thereafter Winston Churchill gave a luncheon speech at the Lord Mayor’s house in London. In the speech Churchill said this victory did not mean that the war was ending or even that it was the beginning of the end, but that it was, perhaps, the end of the beginning of the bad times. Now, I am not trying to equate the struggle of wartime Britain with recent difficulties in the annuity industry. What I am saying is that I believe the annuity industry has faced and is working through its problems. While the fixed annuity sector may not quickly soar back to the previous heights we are at least almost done falling – it is the end of the beginning of the bad times. I’d like to share why I believe this to be so.

Bond Yields Have Bottomed

Bond yields reached their cycle low at on 7 December 2012 at 9:43 AM. Well, I might have gotten the time wrong, but there are indications that bond yields have fallen as far as they’re going to. Two indicators of interest rates, yields spreads and leverage, show that financial conditions are much looser than they have been. When the St. Louis Financial Stress Index and the National Financial Conditions Index are positive it indicates there is stress in the financial markets and lending is tight. The charts on the next page clearly show the tension during the 2008 financial crisis. However, for the last several months these indicators have been negative showing that money is available. Indeed, November 2012 was a record month for corporate bonds issuance showing that corporations believed that there would never be a cheaper time to borrow money than now [The Economist, 8 Dec 12. page 74].

Even though the Federal Reserve Board stated in December that they would keep short-term rates low until unemployment is substantially reduced, the reality is the Fed had already shot their bolt and this announcement will have little additional effect on rates. The driver for increasing bond yields is an improving economy. The economy will improve as 2013 progresses and bond yields will also increase. Another factor helping overall rates is that yields on U.S. Treasury bonds and notes are abnormally low relative to corporate debt yields – a hangover from concerns stemming from the 2008 crisis. Even if overall bond rates stay the same Treasury yields will move up as investors realize they priced too much risk into corporate bonds. As long as the U.S. avoids a full-scale recession bonds will pay more interest as 2013 progresses. [Read More…]

Annuity Guys® Video Transcript:

Eric: Today, we’re looking at whether or not the annuity world is improving at the same pace the economy is.

Dick: Well, that depends on what we want to judge the economy’s pace.

Eric: Is the economy improving? I guess is the first question most people would ask there.

Dick: I think generally speaking, folks are optimistic right now about the economy coming back somewhat.

Eric: Here we’re really foreshadowing into 2013. We’re looking, as we expect things to improve if our projections are right and the band aids get applied. We have that nice new skin that we’ve now in the economy.

Dick: Eric, one thing that’s prompted us this week, is this article that we have here by Jack Marrion and he’s looking at different aspects of annuities and how they’re affected by the bond market and by consumer sentiment the popularity or the supply and demand.

Eric: First of all we should talk about how insurance companies make money. It’s pretty basic. They take in and they buy an investment, they get it here, and then they have to pay you out, whatever they make between what they have got there.

Dick: Between a bond yield and their expenses.

Eric: The expense of the annuity payment is where they make their money. They make their money on the spread. What we had seen in the last couple of years is the pull back of benefits. Boy, they really tightened down the minimum **guarantees and all those pieces, almost to the point that some people are saying there is no benefit at all.

Dick: Maybe they even overreacted, that’s what Jack said.

Eric: That’s what Jack is saying here. Here’s the good news. Even if the bond market does not change much or if we do not have that much improvement in the economy, we’re likely to see an improvement in the annuity world, solely because some companies pulled back further and tighter than they needed to. That’s not saying every company did.

Dick: One thing that excites me about this is that obviously, when it comes to new annuities we like to see new benefits or new or better earning possibilities, but what really excites me is that those folks that already purchased a hybrid or a fixed index style annuity as things loosen up, their caps and ability to earn will continue to increase and improve.

Eric: And a lot of people do not grasp that concept. Those cap rates are not set for the life of the annuity.

Dick: Exactly.

Eric: They adjust on an annual basis, typically. Some of them are a biannual, but you’ll see adjustments in those caps. So yes, some people get mad when things go down or lower than when they started, but they also have the potential to go higher than when you started. So if you are a new entrant in the last couple of years, don’t panic. There is a good chance that those caps will increase with you.

Dick: That’s right. Really what’s more important for most folks, like our clients that we have worked with, is really the contractual **guarantees on the income, is more important than the caps or the cash accumulation.

Eric: We always say the **guarantee is what you hang your hat on, so if you can live with the **guarantee and that’s not going to change. Those **guaranteed pieces don’t change.

Dick: For those of you who already have your annuity, your contractual **guarantees are probably even better than what’s going to be there in the future.

Eric: The other change that may not be so positive in a sense, is that a lot of these rollups and ratchets we’ve seen in the last couple years 7.0-8.0%. Those are the things that make…

Dick: They’re now thinking about pulling those back.

Eric: Because those are long-term pieces.

Dick: They’re liability. Folks, a lot of times and we’ve sat and talked with different ones that have been a little skeptical. Like “Well, the insurance company’s making money. They’ve got it all figured out and they can afford to do this 7.0% or 8.0% or whatever.” Well, when they sit down and they work the numbers out, sometimes they have to pull back on those, because it is too generous.

Eric: So if you’re looking at one of those hybrid styles right now. We do not want to tell you to wait to look for something better, because the better may already be here on that side.

Dick: Right, on the contractual **guarantee side.

Eric: What we’re hearing is kind of what the expectation for the changes in the upcoming year may be more cash values, more increases in cash potential and benefits, based off of actual cash, rather than these **guaranteed withdrawal benefits.

Dick: Right, which is really the pension aspect of the annuity that so many people use effectively.

Eric: And talking about pensions. Jack talks about the changes in people’s perceptions. Ten years ago, when people were actually offered company benefits about half of them would take the pension style and the other half would take the lump sum.

Dick: Right. It’s changed a lot.

Eric: Today, almost 90% of the people or about 90% of the people are taking the pension benefit, so what’s that saying?

Dick: They’re saying “I want the annuity.”

Eric: They want the **guarantee and I think that’s the aspect that their attitudes are changing. They’re not worried about accumulation, so much as worried about having money that’s around as long as they are.

Dick: Well, even annuity owners in the studies that he mentions in here, and folks we will put this out on the blog, so that you can look at it.

Eric: It should be down below, portions of it anyway.

Dick: But one thing that Jack points to from one of his studies, is that of the people who actually own annuities, about 73-75% of those people actually, feel that that’s a very important part of their retirement plan. It’s a strategic allocation to their overall retirement strategy.

Eric: It’s not going to be part of what we are talking about here, but I just read another study that talked about the inclusion of a fixed indexed annuity in a retirement plan and the probability for success and having money at the end.

Dick: Right, I was looking at that also.

Eric: Your probability of success when it includes a fixed annuity versus, either a variable annuity# or just using stocks and bonds or mutual bonds, your probability of success is greatly enhanced, when you had a combination of those pieces. We’re starting to see more and more people consider annuities as a replacement for bonds.

Dick: For bonds right, for that portion of their portfolio.

Eric: Because it takes that degree of risk from the increase in the bond prices or the change in the bond prices.

Dick: Well, there is another layer of insulation, between the bond market and the investor and the consumer.

Eric: You put that portion of liability, really on the insurance company to manage.

Dick: It also gives another aspect which is of protection, which is the longevity aspect the insurance company takes on the longevity risk.

Eric: The last point that I want to make, as far as what Jack talked about. He talked about so few consumers truly understand how annuities work, and that’s probably why you’re sitting here listening to us at this stage, is you’re wanting to learn more about how annuities and how work and how they function. With all these innovations and these changes, the one thing we always say is work with a local financial advisor, because they’re the ones that keeping up on the innovations. It’s their job to take what you’ve learned now, and enhance your ability to pick the right product and right solution for your needs.

Dick: According to the study, less than half of the people feel like they have any knowledge about annuities that are all in this retirement group. It’s the largest group of retirees that are facing retirement that we’ve ever seen. Less than half of them have any real knowledge and only about 5.0% feel that they’re very knowledgeable, so there’s just a lot of room, folks to learn about annuities and know how they’re going to fit.

Eric: So can annuities be part of a successful retirement plan in 2013?

Dick: Absolutely and I do think that as the economy improves that these annuities will take their place and continue to innovate and improve and also very fortunate, for those who already have an annuity that it’s going to be able to keep up.

Eric: Good deal. Thank you very much, for tuning in today.

Dick: Thank you.

 

Is an Old Variable Annuity Better than a New Hybrid?

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“Don’t buy an annuity! The **guarantees they offer are often unnecessary and costly.” – has turned into “that annuity sure saved you from the market meltdown!”; and “you’d better hang on to it!”

So, can today’s annuity buyer expect the same performance from an annuity they could have purchased a few years back? Eric and Dick discuss the variable annuities  of yesteryear and how they compare to the hybrid annuities and variable annuities# of today.

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**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.

A New Twist on Variable Annuities

Variable annuities draw fierce debate from both advocates and skeptics alike. But whether you like the **guaranteed benefits that they offer or think that they cost too much for the protection they provide, one thing is clear: Those who bought variable annuities# with **guarantee provisions five years ago got a screaming deal.

Plunging markets showed off the best attributes of variable annuities# with **guarantee provisions. Now, Hartford Financial is making an interesting offer to some of its variable annuity# holders: It’s trying to buy them out.

The pros and cons of variable annuities#

The reason financial experts on both sides of the variable annuity# debate have such strong reactions to the products is that they offer an unusual set of reward characteristics. On one hand, variable annuities# often give policyholders upside potential similar to that of mutual fund^s, ETFs, or other pooled investments. Yet the insurance aspect of annuities adds the ability to provide additional **guarantees, which regular mutual fund^s and ETFs can’t do. The view that opponents take, on the other hand, is that these **guarantees are often unnecessary and are usually costly. With annual expense ratios for variable annuities# typically well above what a similar mutual fund^ or ETF would charge, the **guarantees they offer definitely come with a cost — and under ordinary market conditions, the cost often exceeds the benefit.

How the market meltdown hurt insurers Over the past several years, though, market conditions have been anything but normal. A more than 50% plunge in the stock market from late 2007 to the market’s bottom in early 2009. [Read More…]

 by Dan Caplinger of Fool.com on November 15, 2012

Annuity Guys® Video Transcript:

Dick: We have a real twist on things, Eric. The same folks that we’re advising everyone not to buy a variable annuity#, we don’t get into the variable annuity# as much as we do the hybrid annuity, but a lot of the folks that were talking bad stuff about the variable annuity# . . .

Eric: Saying nasty things about buying a variable?

Dick: We’re seeing this change of events. Were the **guarantees were so good in the variable annuities# of yesteryear, that nowadays, the same guys that were basically saying, “Don’t buy those. They’re just paying high commissions to insurance agents,” are now basically saying, “If you’ve got one of those variable annuities#, do not let it go.”

Eric: The **guarantees you’ve got there, nobody can beat that. I don’t know how you did that. It’s interesting, because we say . . . In the fund thing in this article, they talked about, “The **guarantees were often unnecessary and costly.” Guess what, it’s **guarantees. Why is it you’re . . .

Dick: They’re not unnecessary when they’re necessary.

Eric: They weren’t costly when they saved your butt.

Dick: Exactly, when it became a great deal. That’s where we always say that hindsight’s 20/20. All the experts seem to agree, and then find out later that they’re wrong.

Eric: That’s where when we talk about annuity, you talk about the **guarantees. If you can live with the minimum **guarantee, you know exactly what you’re going to get, and you’re happy with that, anything beyond that is icing.

Dick: Right. I personally, Eric, have talked to several folks that have called in and described their variable annuity# to me. They’ve said, “It’s got a 6% death benefit. It’s got a 6% withdrawal rate that I’m taking out. I’ll get my principle back. I can take 6% out.”

Eric: We can’t get those right now.

Dick: Yeah. We tell those people typically, “Unless there’s some great extenuating circumstances, don’t give that up.” That is a very good **guarantee, and they don’t do that anymore.

Eric: Right. Some of them . . . if you bought it when the market was going gangbusters, and you had that annual lock-in or those ratchets, so it locked in at that high watermark . . .

Dick: Right. You’re working off of that now.

Eric: Then ‘shh’.

Dick: Yeah, going up from there.

Eric: Everything else going down. Now it keeps building off of that.

Dick: Yes. The variable annuity# companies, they looked at past performance. They did their actuarial studies, and they said, “Based on this, we can offer these contractual **guarantees.” What do they tell us about past performance?

Eric: Never predict future performance. Never **guarantee future performance based on the past.

Dick: Exactly. Here they are caught in their own dilemma of future performance not matching past performance, so they’re all scaling back.

Eric: We should make the point that these companies that are trying to buy out of their **guarantees, it’s not at risk to the consumer.

Dick: True.

Eric: What these companies are trying to do, they’re just trying to become more profitable, because they have to dedicate a whole lot more assets reserving for those **guarantees. They can take those dollars and use them in more profitable divisions, typically, property casually and those other areas. Those are the companies that are saying, “We can make more money by putting our dollars someplace else.” Your annuities, if you’re in one of those companies that is looking at maybe buying you out . . .

Dick: Think twice.

Eric: First of all, I don’t know if it’s a great option to buy it out. You have to weigh that very carefully, as well.

Dick: Get with an adviser that can really look at it closely and say, “This is a good one. Keep it.” That doesn’t mean that all of the older annuities are good.

Eric: Right. There’s some bad ones.

Dick: Yes, there are. Yet, if you’re looking for a new annuity, there are newer annuities, and this is where we get back into the hybrid or the fixed, because they weren’t investing in the stock market or riskier investments. They’re putting the money from those annuities into bonds and very high-grade investments, US treasuries, so they weren’t hit with the same things that variable annuity# companies have been, and their contractual **guarantees are, in many case, equal to or better than what some of the past variable annuity# **guarantees were.

Eric: Those are really the new style that we like, that typically took some of those best components from those old variables, those income riders and those income **guarantees, and then added those to a fixed component. That’s where we see a lot of the move in today, where if you’re looking at an annuity today, those fixed or hybrid annuities with indexing components to get better returns.

Dick: They give you those contractual **guarantees that the old variable annuities# gave us. I guess, nobody really knows the future, but I’m going to go out on a limb here and predict something. It’s like when we look at ourselves in a mirror, Eric; we are all guilty of it. We look back 2 or 3 years ago and we go, “Wow. I was a lot thinner then. I was a lot younger then. I wish I could go back to that.” I predict that if things continue on with the type of economy and headwinds we’ve had, that we’ll look back at today’s annuities and we’ll go, “Wow. What if I would have got that setup then?” It’s that way each year that goes along, as long as there are some good contractual **guarantees. If we can lock into those and we’re satisfied with those, a lot of times later on, we can look back and go, “Wow. That was a good move.”

Eric: Yeah, I agree. It’s being satisfied with the **guarantee, as long as that . . . Are you going to answer the question? Are the old ones better than the new ones?

Dick: Many times, we end with a statement that basically says, ‘It’s depends’, and it does depend. You really do have to look at it and determine it. Most the time on an older variable annuity#, going back maybe 3 or 4 years, where that annuity had some good riders on it, there’s a pretty good chance that you don’t want to give that annuity up. On the other hand, if we’re looking at some of these newer annuities, and maybe yours was quite a bit older or you didn’t get the riders on it . . .

Eric: Don’t have the **guarantee.

Dick: Right. Or you just can’t live with the idea that your principle’s at risk and it can go backwards, there can be some reasons to change up to a newer annuity.

Eric: In hindsight, basically, or in retrospect, some of the old ones are good and some of the new ones are good; some of the old ones are bad and some of the new ones are bad. You had it, we summarized it.

Dick: That’s right.

Eric: Thanks for checking us out today.

Dick: Thank you.

Do Not Waste Time Considering Annuities, If You…

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Do not waste your time considering annuities if you cannot find one of the following Annuity Profiles that matches your situation.

Annuity Profiles
1.    Security Oriented – Reached a stage in your life when market risk is not appealing.
2.    Value Freedom from Oversight – Want money to grow securely but do not want to be bothered with constant monitoring. Set it and forget it!
3.    Want a Pension Style Income – Can appreciate a reliable stream.
4.    Like Avoiding Probate for Heirs – Knowing that money can transfer efficiently and IRAs can be stretched over your children’s lifetime.
5.    Your Healthy and Plan to Live a Long Life – Longevity makes annuities work in your favor.

The above scenarios do not have to be an all or nothing strategy. Having specific amounts of money allocated to specific purposes allows for a blending approach when accomplishing retirement objectives.

The above attributes are not as well suited to variable annuities# where securities risk and higher fees are typical.

Dick and Eric discuss the above Annuity Profiles in more detail.

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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. 

Case Study Example from the Insurance Information Institute:

Is an Annuity Right for You?

Click a Star to rate us as you watch, we love your feedback!!! Click video once for play or to pause.

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Why should I consider purchasing an annuity?

Annuities can serve many useful purposes.

If you are in a saving-money stage of life, a deferred annuity can:
Help you meet your retirement income goals.
Help you diversify your investment portfolio.
Help you manage your investment portfolio.

If you are in a need-income stage of life, an immediate annuity can:
Help protect you against outliving your assets.
Help protect your assets from creditors.

Read more from the Insurance Information Institute.

Annuity Guys Video Transcript:

Dick: You know annuities really aren’t for everyone and Eric and I…

Eric: Shock! Oh my god.

Dick: Eric and I’d like to kind of tackle that today, and just be maybe a little bit blunt and explanatory, on those that an annuity works well for and those that don’t.

Eric: You’re just saying “Don’t waste time, either yours or ours if…”

Dick: Well, now we don’t mind to waste a little of our time, but it’s their time that they’re concerned about.

Eric: Okay, their time. So if you don’t fit the annuity profiles that we’re going to talk about, probably not best to invest too many more hours pondering, whether or not an annuity fits your situation.

Dick: Right, and many times folks, someone has recommended an annuity to you. Could be an adviser, it could be a friend and it’s really wise to look at your options, and consider what does make sense, what doesn’t make sense, whether it’s an annuity, or an ETF, a mutual fund^, whatever it is that you’re thinking about. However, there are some things about an annuity that make them good for some and not good for others.

Eric: Right, so we always talk about **guarantees safety, **guaranteed growth, , those are some of the things. So if you’re a mutual fund^s stock picker and you like that security as being in the market, you like that aggressive growth profile, an annuity’s probably not.

Dick: Right, an annuity wouldn’t be the right thing. I mean you’re less security-oriented. You’re more willing to take risk. Another thing would be that you would really look at this market, and you would say to yourself that over the next decade or two, that you think things are going to really rock and roll. They’re going to do well. If you’re the type of person that really believes that we’re in for a tough couple of, the next 20 years then you may find yourself thinking that an annuity is pretty appealing.

Eric: Yeah, or if you like to be actively involved.

Dick: Right.

Eric: You know if you’re one of these hands-on, you want to be the trader, you want to have your fingers in everything. I flash back to the Ronco commercials of yore, you know? The little toaster, where it used to say, you know, “You set it and forget it.” If you’re that mentality, then maybe an annuity is kind of an appeal, because it’s one of those things you want that **guarantee, that aspect of the annuity. You want that regular check coming.

Dick: So folks, if you like the idea of freedom from oversight you don’t have to be involved in the day to day activity, the monthly ups and downs of the statement coming in. If that appeals to you then yes, you’re probably going in the right direction.

Eric: Yeah, if you run to the mailbox get that investment statement and go, “Yes,” then that’s probably not an annuity person, you’re more of an investment person.

Dick: Right, exactly.

Eric: So pension-styled income, we talk about you like the idea of getting that check every month. If that appeals to you…

Dick: Well, it’s quite different. There’s nothing else out there, there just literally, is nothing that gives you income **guarantees like an annuity.

Eric: Well, a pension.

Dick: Well, and that is an annuity. I mean Social Security it is a form of an annuity type arrangement. Pensions are annuity type arrangements, and so if you have a lump sum of money, and you want to know that you’re never going to run out of money, never going to run out of income and you value that, then an annuity really is in that line of thinking.

Eric: Right, if you’re more of a person who says, “You know what? I’m just going to take out a fixed. My investments I’ll manage them. I can pull out 3.0-4.0-5.0% every year and I’ll be happy. I don’t need that **guarantee aspect. I’m comfortable with a little.”

Dick: Right, and if inflation goes crazy, and you start getting into your principal that type of thing that you’re comfortable with making those adjustments along the way.

Eric: You can flex up and down.

Dick: Right, right. Again, you’re kind of out of that mode of auto-pilot or set it and forget it. You’re a hands-on, do-it-all.

Eric: Hands-on, right.

Dick: And we have to realize too, this is another issue that I’ve run into with clients and I know you have. Is that as we age, as retirement progresses along we have less and less tolerance or we see our clients have less and less tolerance, for being right on top of things and manipulating it themselves. They really want a lot of times, more of that auto-pilot setup.

Eric: Right, exactly, and I think people start to feel more secure. When you don’t have a salary check coming every month, all of a sudden that regular flow of income that you’re used to getting, if you’ve been in one of those jobs where you got that check every month, then all of a sudden switching to something that’s a little more uncertain.

Dick: Right and you have to make those decisions.

Eric: And they may have been a little bit more aggressive and had tolerance of the market’s ups and downs, at that point in time in their life, but all of a sudden, now they have to get that monthly paycheck. Those ups and downs become a lot more painful.

Dick: It makes a big difference in your ability to sleep well at night and to feel comfortable with what you’re doing.

Eric: Exactly. Speaking of feeling comfortable one of the things, probate comes in. Everybody’s suing everybody these days, but one of the nice things about a lot of states is that annuities are protected, basically from creditors.

Dick: From creditors, that type of thing, and yet even for probate it’s such an efficient way to take money around the probate court, because it goes directly to the heirs, and so that’s good. Also folks, if you have an IRA, that IRA can be stretched, stretched out to your heirs. And insurance companies are one of the few financial institutions that really do that effectively. They are just set up for it. It’s the way they work. So in effect, you can transfer an IRA. Give your children maybe, the equivalent of their own retirement in the future from your IRA, if you don’t need to spend it.

Eric: Exactly. Yeah, and kind of the last profile that I would say that really is key for an annuity, if you think you’re going to have some longevity. You’re going to live a nice long life and you don’t want to have to worry about running out of money, that’s it. That’s the sweet spot right there.

Dick: Right, right. Well, and you know Eric, we’ve always said and we tell people all the time, look we’re not trying to beat the insurance company or beat up on the insurance company.

Eric: Occasionally, I like to beat them, but…

Dick: But if our clients can win. Obviously, we’re always going to err on our client’s side. So if someone has longevity, they really believe that they have the possibility of living that longer life, they really will actually, statistically come out ahead, and win against the actuaries at the insurance company. So then the rate of return isn’t just decent or acceptable or reasonable, it’s very good, and so that’s where we like to have that conversation. There’s also a flip side to this, which I just might want to mention because there’s a few of you folks out there that are just the opposite. You actually believe you’re going to live a much shorter life, and yet you want to know that you can maximize the money that’s coming in to you, never run out and spend all you want while you’re still here. The thing you want to do there is look at an immediate annuity, that’s medically underwritten, because you’ve got some medical condition that you believe will shorten your life, and we can actually do a medically underwritten annuity.

Eric: Right, you may have a condition that basically says, “You know what? Statistically, it takes a couple years off your life expectancy.” Then they rate that based off of that new age that they calculate.

Dick: Right, right. So Eric, is it possible that some people are wasting their time considering annuities?

Eric: Well, most definitely. I mean you always want to look at all your options.

Dick: You do.

Eric: Obviously, the answer is annuities are not for everyone.

Dick: That’s true.

Eric: So hopefully our little five points here, that we’ve got on this page, will help you determine whether an annuity is right for you.

Dick: Exactly. You really have to weigh your situation over and when you go over these points, if a lot of them sound like you, and make sense to you then go forward, do your research, go consider an annuity, and if it’s the opposite?

Eric: Right, if you can’t hit one of the items on the checklist.

Dick: One or two, yeah, just sayonara.

Eric: Thanks for checking us out today.

Dick: Thank you.