Looking Forward: On "Retiree Annuities May Be Promoted by Obama Aides" by Theo Francis

On "Retiree Annuities May Be Promoted by Obama Aides" by Theo Francis

Original Article by Mr. Francis:

http://www.businessweek.com/news/2010-01-08/retiree-annuities-may-be-pushed-by-obama-after-market-losses.html

Mr. Francis reports that "The Obama administration is weighing how the government can encourage workers to turn their savings into guaranteed income streams following a collapse in retiree accounts when the stock market plunged." The effort to seek public comment is being led by Assistant Labor Secretary Phyllis C. Borzi and Deputy Assistant Treasury Secretary Mark Iwry.

Rick Santelli from the CME comments on CNBC as to what the move means: "Instead of a bit of your paycheck going into equities every week, it will probably be going into things like Treasuries it would be a little bit lower return but it would be safer." With respect to Mr. Santelli's observation, we believe the Ms. Borzi and Mr. Iwry are interested in encouraging income streams for retired workers, and not terribly interested in controlling the accumulated income source. Fixed annuities, for instance, are tied to equities index performance, not treasuries market index performance.

John Brennan, Vanguard CEO, criticized annuities as often expensive and offering little inflation protection. One can assume that the annuity prices will decline if the initiative takes hold, due to sales volume alone. Additionally, a fixed annuity is actually a good hedge against inflation. See my previous post on the subject: http://www.learnhowtoretire.com/blog/2009/07/13/calculating-how-much-you-will-need-in-retirement-facing-inflation/

Citing the 31% average drop in retirement fund balance during the recent market plummet, Borzi is quoted as saying there is “a tremendous amount of interest in the White House” retirement security initiatives. Though there has been a terrific market bounce back since March 2009, the economy is still weak, unemployment is over ten percent nationally, and many experts think the other shoe is about to drop: an explosion of mortgage foreclosures (the root cause for the market drop) this year that will be greater than the recent batch.

The article cites reports from the Retirement Security Project (7/2009), which found that only 2% of 401(k) plan participants convert retirement savings into an annuity on retirement, and from Watson Wyatt Worldwide that about 22 percent of employers with retirement savings plans offered retirees the choice between an annuity and a lump-sum distribution. It seems pretty clear that the administration is interested in addressing the risk of individual's exhausting lump-sum benefit payouts by encouraging workers to consider income streams as an alternative.

Viewpoint:

This measure is an attempt to shed more light on the annuity option, so that workers can have enough income in old age. In this context, it only a mechanism to guarantee individual workers will not outlive their savings. I see it as an opportunity for individuals to convert their funds to fixed annuities, to take part in market gains, to hedge against inflation and to remove market volitity as a retirement savings factor.

Reducing one's risk and protecting one's principal has got to be job number one in this environment. It is critical that savers find a trusted advisor to discuss this matter with. I think it is crucial that this advisor be be an independent representative. One whose primary job i s your financial security and who is not bound to sell you a single company's product. To find someone in your neighborhood click here.

About this Blog:

Understanding what is available to you is more important now then ever. Learn How to Retire is part of your educational journey and was developed to help you find the new Safe Money alternatives you need to accomplish your retirement goals. In today’s economic environment one must realize that the only way to find success is through individual empowerment. Once you have taken the time to educate yourself you only then have the power to make the right decisions and put the trust factor on your shoulders. The more you know the more you will succeed. LearnHowToRetire.com is “Individual Empowerment” Once you have taken the steps to understand then you are free to find the qualified and trusted advisor to help take your knowledge and formulate a plan. Safemoneyrep.com: Where People Find Trusted and Qualified Advice.

What Are Some Fixed Deferred Annuity Contract Benefits?

Annuity income payments

One of the most important benefits of deferred annuities is your ability to use the value built up during the accumulation period to give you a lump sum payment or to make income payments during the payout period. Income payments are usually made monthly but you may choose to receive them less often. The size of the income payments is based on the accumulated value in your annuity and the benefit rate which is in effect when payments start.

The benefit rate usually depends on your age, sex, and the annuity payment option you choose, if it is a lifetime payout. For example, you might choose payments that continue as long as you live, as long as your spouse lives, or only for a set number of years. There is a table of guaranteed benefit rates in each annuity contract.

Most companies have current benefit rates as well. The company can change the current rate at any time, but it can never be less than the guaranteed benefit rates.

When income payments start, the insurance company uses the benefit rate in effect at that time to figure the amount of your income payment. Companies may offer various income payment options, and you, or another person of your choice, may choose the option.

Life only

The company pays income for your lifetime, but doesn't make any payments to anyone after you die. You might choose this option if you have no dependents, if you have taken care of them through other means or if the dependents have enough income of their own. This payment option usually pays the highest income possible.

Life annuity with period certain

The company pays income for as long as you live and guarantees to make payments for a set number of years - called the period certain - even if you die. The period certain is usually 10 or 20 years. If you live longer than the period certain, you will still continue to receive payments until you die. However, if you die during the period certain, your beneficiary gets regular payments for the rest of that period. If you die after the period certain, your beneficiary does not receive any payments from your annuity. Each income payment will be smaller than in a life-only income option, because the period certain is an added benefit.

Joint and survivor

The company pays income as long as either you or your beneficiary lives. You may choose to decrease the amount of the payments after your death, or you may be able to choose to have payments continue for only a set length of time. Again, because the survivor feature is an added benefit, each income payment is smaller than in a life-only income option.

Death benefit

In some annuity contracts, the company may pay a death benefit to your beneficiary if you die before the income payments start. The most common death benefit is the contract value or the premiums paid, whichever is more.

About this Blog:

Understanding what is available to you is more important now then ever. Learn How to Retire is part of your educational journey and was developed to help you find the new Safe Money alternatives you need to accomplish your retirement goals. In today’s economic environment one must realize that the only way to find success is through individual empowerment. Once you have taken the time to educate yourself you only then have the power to make the right decisions and put the trust factor on your shoulders. The more you know the more you will succeed. www.LearnHowToRetire.com is “Individual Empowerment” Once you have taken the steps to understand then you are free to find the qualified and trusted advisor to help take your knowledge and formulate a plan. www.safemoneyrep.com “Where People Find Trusted and Qualified Advice”

About this Blog:
Understanding what is available to you is more important now then ever. Learn How to Retire is part of your educational journey and was developed to help you find the new Safe Money alternatives you need to accomplish your retirement goals. In today’s economic environment one must realize that the only way to find success is through individual empowerment. Once you have taken the time to educate yourself you only then have the power to make the right decisions and put the trust factor on your shoulders. The more you know the more you will succeed. LearnHowToRetire.com is “Individual Empowerment” Once you have taken the steps to understand then you are free to find the qualified and trusted advisor to help take your knowledge and formulate a plan. Safemoneyrep.com: Where People Find Trusted and Qualified Advice.

What charges or fees may be subtracted from my fixed deferred annuity?

Most annuities have charges related to the cost of selling or servicing it. These charges may be subtracted directly from the contract value. Ask your agent or the company to describe the charges that apply to your annuity, if any.

Surrender of withdrawal charges

If you need access to your money, you may be able to take all or part of the value out of your annuity at any time during the accumulation period. If you take out part of the value, you may pay a withdrawal charge. If you take out all of the value and surrender, or terminate, the annuity, you may pay a surrender charge. In either case, the company will figure the charge as a set percentage of the value of the contract, of the premiums you have paid or of the amount you are withdrawing. The company may reduce or even eliminate the surrender charge after you've had the contract for a stated number of years (term). A company may also waive the surrender charge when it pays a death benefit.

Some annuities have stated terms. When the term is up, the contract may automatically expire or renew. You are usually given a short period of time, called a window, to decide if you want to renew or surrender the annuity. If you surrender during the window, you won't have to pay surrender charges, but if you renew, the surrender or withdrawal charges may start over.

For some annuities, there is no charge if you surrender your contract when the company's current interest rate falls below a certain level. This is sometimes called a bail out option.

In a flexible premium annuity, the surrender charge may apply to each premium paid for a certain period of time. This may be called a rolling surrender or withdrawal charge. Some annuity contracts have a market value adjustment feature. If interest rates are different when you surrender your annuity than when you bought it, a market value adjustment (MVA) may make the cash surrender value higher or lower. Since you and the insurance company share this risk, an annuity with an MVA feature may credit a higher rate than an annuity without that feature.

Free withdrawal

Your annuity may have a limited free withdrawal feature. That lets you make one or more withdrawals without a charge. The size of the free withdrawal is often limited to a set percentage of your annuity contract value. If you make a larger withdrawal, you may pay withdrawal charges. You may lose any interest above the minimum guaranteed rate on the amount withdrawn.

Some annuities waive withdrawal charges in certain situations, such as death, confinement in a nursing home or terminal illness.

Contract fee

A contract fee is a flat dollar amount charged either once or annually.

Transaction fee

A transaction fee is a charge per premium payment or other transaction.

Percentage of premium charge

A percentage of premium charge is a charge determined from each premium paid. The percentage may be lower after the contract has been in force for a certain number of years, or after total premiums paid have reached a certain amount.

Premium tax

Some states charge a tax on annuities. The insurance company pays this tax to the state. The company may subtract the amount of the tax when you pay the premium, when you withdraw your contract value, when you start to receive income payments or when it pays a death benefit to your beneficiary.

Our Expert Advisors are always available to answer your questions. To learn more about charges and fees associated with fixed deferred annuities click here.

To speak with an advisor in your area click here.

About this Blog:
Understanding what is available to you is more important now then ever. Learn How to Retire is part of your educational journey and was developed to help you find the new Safe Money alternatives you need to accomplish your retirement goals. In today’s economic environment one must realize that the only way to find success is through individual empowerment. Once you have taken the time to educate yourself you only then have the power to make the right decisions and put the trust factor on your shoulders. The more you know the more you will succeed. www.LearnHowToRetire.com is “Individual Empowerment” Once you have taken the steps to understand then you are free to find the qualified and trusted advisor to help take your knowledge and formulate a plan.www.safemoneyrep.com “Where People Find Trusted and Qualified Advice”.