Buy the Simplest Annuity that Meets Your Personal Financial Goals

Annuities are definitely not one size fits all, and they shouldn’t be bought or sold that way.  I have to agree with Stan “The Annuity Man” Haithcock on this one.  In his Marketwatch article, “No all-in-one annuity cures; take a ‘PILL’,” he compares an annuity to a Swiss army knife to see if one annuity can have all the tools needed for your retirement.  Spoiler alert: it cannot and that is something that Annuity FYI works to help consumers with all of the time.  

Annuities should be used as part of a retirement plan and the annuity you choose must be based on your individual needs and goals.  The author of this article doesn’t like using annuities for their growth potential and that is certainly his prerogative, but variable and indexed annuities do have their place in some retirement portfolios.  While they won’t offer the growth potential of some non-annuity products, they often offer better guarantees on your money and other benefits as well.

Stan prefers annuities to be simple and often, simpler is simply better.  His motto of using the PILL approach to annuities includes the benefits of principal protection, income for life, legacy, and long-term care.  If you are looking to solve any or all of those four problems, a simple annuity with low fees and short surrender charge time frames is best.  When shopping for an annuity, look for one that is trying to solve your immediate need, as opposed to an annuity that has everything.  

The more riders you add onto an annuity, they more you will pay in annual fees.  There is no reason to add on a death benefit, income rider, or add on confinement care expenses if you don’t need those things.  It sounds simple, but a lot of people go into buying an annuity with the mentality that they need everything.  If you have life insurance or long-term care insurance, you simply may not need an added rider and cost for your annuity.

Newer annuity products on the market are sometimes advertised as being “hybrids” that offer benefits of multiple types of annuities.  Stan doesn’t believe that these new products offer additional benefits, and he is right that you should tread carefully when considering them.  If you are looking for two types of protection or guarantees with your annuity, a so-called hybrid could be right for you if the cost brings you value. 

Also consider looking at an annuity to cover your main goal, like a lifetime income stream, and see if adding a rider on for something else is a better value in your financial plan.  Shopping around is the key to buying the right annuity, not necessarily the annuity that has “everything.”  Buying an annuity solely for an upfront bonus or a confinement care rider is rarely a good idea.  If an annuity has exactly what you need and offers one of these bonuses, great.  An expert financial advisor can help ensure that you do not purchase more than you need or less.

Written by Rachel Summit
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Advisors Call for Variable Annuity Transparency, Inflation Protection

Date posted: September 26, 2013

An adviser isn't likely to sell you an annuity that they don’t understand, or at least they shouldn't.  Many advisers called out for insurance companies to make sure their annuities are straightforward at the IRI’s annual conference.  Darla Mercado’s Investment News article, “Annuities changes puzzle advisers,” talks about what advisers hope to see from annuity products.  Not only do advisers need to know the ins and outs of the annuity products, but it’s important that they can explain the way the annuities work to their clients.  More specifically, variable annuities’ features and investment options are puzzling some advisers, especially when changes are made during the duration of the annuity contract.

Variable annuities have helped many investors during the financial crisis because of their particular features, but advisers hope that some changes can be made.  Clients seek advice from advisers because they trust that the advisers can recommend a product to help their money grow the way they desire.  Advisers admit that some variable annuities may be a great fit for certain clients, but their complexity takes them off the table.  Even if the advisor can mire through a tricky contract, they can’t always explain it to their client and often worry that they missed something in the contract that could be detrimental to their client’s money.  Because of this, a variable annuity that is a good fit for a client might be overlooked.

Changes in investment options are the biggest worry for advisers right now.  They are particularly focused on products using hedging strategies to protect insurers from market volatility and how these changes will affect the return that their clients see.  New options don’t have a history to prove to advisers or clients that they will offer a decent return and perform how the clients expect them to.  But advisers point out that many clients are more concerned now with guaranteed income in retirement, rather than large returns. 

Even so, advisers want to make sure that they understand the contract options and can explain them to their clients, large return or small.  Some advisers are asking for more inflation protection with variable annuities in case there is no return based on market performance.  I have a feeling that insurance companies are listening to advisers and will work to make variable annuities transparent and maybe even add on some guaranteed inflation protection.

Aviva USA's Fixed Annuity Business Sale Finalized

Date posted: October 7, 2013

It’s been almost a year, but the deal to purchase Aviva USA’s annuity business is finally complete.  The Des Moines Register, which has an active interest in this story since the company is located in Iowa, offers up the details in “Apollo completes Aviva USA deal for $2.6 billion.”  Victor Epstein writes that the deal ended up costing Apollo Global Management $800,000 more than their original offer of $1.6 billion back in December of last year.  State insurance regulators spent a long time evaluating the sale of Aviva USA to private equity firm Apollo.  They will be incorporating Aviva USA’s annuity business into their Athene insurance unit and renaming it Athene USA.  While keeping the majority of the annuity business in tact, Apollo sold the life insurance business to Global Atlantic Financial Group.

Retirees and financial planners like the steady returns of annuities, which has kept them popular over the years.  Athene plans to strengthen their place in the retirement services market through their integration of Aviva USA’s annuity business into their corporation.  They say that they will continue to offer exceptional service as well as consistent results for annuity holders.  The company’s annuity sales have decreased since Aviva USA was on the market, but that isn’t really surprising.  While overall indexed annuity sales increased 5.5% since the same time last year, Aviva USA’s indexed annuity sales went down 55%.  Unfortunately for the Des Moines area, employment at the facility has also decreased since Apollo took over the annuity company.  Iowa’s Insurance Commissioner says that he is sympathetic to those who have lost their jobs, but stresses that Apollo plans to keep their new annuity business in Des Moines.

Athene will now be one of the biggest fixed annuity companies in the United States after gaining the fixed annuity business of Aviva USA.  They now have $60 billion in assets and plan to expand their annuity business by more acquisitions in the future.  Athene’s parent company, Apollo, is increasing its assets under management more than threefold by this purchase.  Apollo will provide asset allocation and investment management services for the new Aviva USA business just as it does for Athene’s other annuity business.  Now that the sale has been finalized, we’ll have to continue watching to find out how Athene’s acquisition of Aviva USA’s annuity business changes the overall annuity landscape.  The large decline in indexed annuity sales was likely due to uncertainty related to the business sale, so the future sales will be a better indicator of the impact of this annuity sale.

Choose an Annuity Based on Your Top Priority

Date posted: October 10, 2013

Many annuity products claim that they can give you the best of both worlds or offer you everything you need in just one product.  The thing with annuities is that they offer you great benefits, but you really need to focus on the benefit that is most important to you first.  In the Marietta Daily Journal’s “Making annuities more effective,” William G. Lako Jr. suggests that annuities should be used for one main focus.  He means that instead of hoping to solve all of the issues related with finances and retirement in one product, solve the issue which is most important to you first.  This might be guaranteed income or it could be the growth of your money.  Growing your money in retirement in a safe way is important to many people.  Others would rather protect the money that they already have, but be guaranteed a stream of income that will last over their lifetime.

There are annuity products that can meet the needs of both of these types of people.  But you will give up a little bit of one to get both needs met with the same product.  Mr. Lako believes that the most effective way to use annuities is to focus your product purchase on your main goal.  You buy an annuity to transfer your risk to the insurance company.  Once you choose an immediate or deferred annuity, the insurance company will make payments to you for as long as the contract lasts.  Many people choose to receive income for the rest of their life, which is factored into the amount of your payments.  Insurance companies assume the risk because they will continue to pay you even if your account balance goes down to zero.  Your risk comes in if you die prematurely and don’t deplete your entire account balance.  With that being said, using annuities as the opposite of life insurance takes your risk out of the equation.  You are insuring against running out of money in retirement, whether or not you live a long life doesn’t matter as much when you think of it that way.

If income is your number one goal, you can work with a financial advisor well-versed in annuities to find a fixed annuity product that will keep your money safe and offer you income payments.  An immediate annuity allows you to transfer both longevity risk and stock market risk to the insurance company.  In exchange for this, you give up most of your growth potential.  But that is exactly what many people are looking for as part of their overall financial plan.  On the other hand, if growth is your top priority, there are many deferred annuities that offer guaranteed growth and principal protection.  Once you find a product that meets your top goal, you may be able to find the potential to cover other smaller goals as well.  But the author recommends starting with one goal in mind and letting everything else be the icing on the cake.  A financial advisor can look at your specific situation and determine the annuity product that would work best for you.

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