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Should You Choose a Variable Annuity?

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Occasionally, we get requests from our site visitors and viewers to help them review a particular annuity – like that from Larry below.

Dear Annuity Guys®,

I asked my broker about annuities and he is recommending a variable annuity# from @%#^#. What is your opinion of this annuity?

Larry T.

Watch as the Annuity Guys® discuss who should choose or even consider a variable annuity#?

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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.

Typically, we try and provide an answer that highlights the pros and cons about the specific annuity in question. However, there are some aspects regarding variable annuities# in particular that need to be made clear prior to even considering variable annuity#.

Here are fourteen questions to consider prior to selecting a variable annuity#.

  1. Is any annuity really the right choice for you?
  2. Are you comfortable with your principal being at risk?
  3. Is your reason for buying a variable annuity# for growth and/or tax-deferral?
  4. Are you planning on using this annuity for lifetime income?
  5. Is your advisor/broker an annuity specialist? (Did they offer and discuss various types of annuities?)
  6. What are the fees – including the hidden fees, that do not appear on the statements?
  7. Do you understand the pros and cons associated with living benefit riders?
  8. Will you have adequate liquidity?
  9. How many ways and how soon can you access your money?
  10. What is the surrender period and the associated charges?
  11. What are the costs associated with the investment accounts?
  12. Who is responsible for selecting the investment accounts?
  13. What is the minimum **guarantee?
  14. What is the death benefit?

These are a few of the topics we would recommend discussing prior to finalizing a variable annuity#. Due to the popularity of these annuities, they are frequently highlighted in the media – for both their positives and mostly negatives, for the way in which they are abused. If you are in the market for or have been proposed a variable annuity#, please be sure to read this article from the Securities and Exchange Commission on variable annuities#.

Variable Annuities: What You Should Know

Variable annuities have become a part of the retirement and investment plans of many Americans. Before you buy a variable annuity#, you should know some of the basics – and be prepared to ask your insurance agent, broker, financial planner, or other financial professional lots of questions about whether a variable annuity# is right for you.

This is a general description of variable annuities# – what they are, how they work, and the charges you will pay. Before buying any variable annuity#, however, you should find out about the particular annuity you are considering. Request a prospectus from the insurance company or from your financial professional, and read it carefully. The prospectus contains important information about the annuity contract, including fees and charges, investment options, death benefits, and annuity payout options. You should compare the benefits and costs of the annuity to other variable annuities# and to other types of investments, such as mutual fund^s.

What Is a Variable Annuity?

A variable annuity# is a contract between you and an insurance company, under which the insurer agrees to make periodic payments to you, beginning either immediately or at some future date. You purchase a variable annuity# contract by making either a single purchase payment or a series of purchase payments.

A variable annuity# offers a range of investment options. The value of your investment as a variable annuity# owner will vary depending on the performance of the investment options you choose. The investment options for a variable annuity# are typically mutual fund^s that invest in stocks, bonds, money market instruments, or some combination of the three.

Although variable annuities# are typically invested in mutual fund^s, variable annuities# differ from mutual fund^s in several important ways:

First, variable annuities# let you receive periodic payments for the rest of your life (or the life of your spouse or any other person you designate). This feature offers protection against the possibility that, after you retire, you will outlive your assets.

Second, variable annuities# have a death benefit. If you die before the insurer has started making payments to you, your beneficiary is **guaranteed to receive a specified amount – typically at least the amount of your purchase payments. Your beneficiary will get a benefit from this feature if, at the time of your death, your account value is less than the **guaranteed amount.

Third, variable annuities# are tax-deferred. That means you pay no taxes on the income and investment gains from your annuity until you withdraw your money. You may also transfer your money from one investment option to another within a variable annuity# without paying tax at the time of the transfer. When you take your money out of a variable annuity#, however, you will be taxed on the earnings at ordinary income tax rates rather than lower capital gains rates. In general, the benefits of tax deferral will outweigh the costs of a variable annuity# only if you hold it as a long-term investment to meet retirement and other long-range goals.[…Read the rest of the article from the SEC]

Relying on Annuities for Retirement Pensions

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The private sector has been bailing on providing pensions for employees over the last few decades. Now, it appears legislation to “radically change”  public sector pension plans may also be in the works.

In Illinois, we are aware of how much strife a public pension battle can impact both the fiscal health of the state and that of those employees who were promised lifetime retirement benefits. The proposed legislation would provide for private insurance carriers to manage the public sector retirement income pension systems. Historically, many individuals enjoyed the benefits of defined benefit plans. Yet, now with benefits being cut and lump sum buyouts being offered, many employees are weighting the option of defined benefits versus a pension styled annuity plan.

The Annuity Guys® discuss why insurance companies – with proven track records in managing investment and longevity risk successfully – may be better choices for overseeing your retirement income than both private and public sector pension managers.

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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.

If you (and your spouse, if you have one) could have a pension styled income for life and still pass on any unspent retirement dollars to heirs, would you do it? This is the reason many individuals are converting lump sum buyouts, 401ks and IRAs into annuity portfolios that provide lifetime income, safe and consistent growth with preservation of their lump sum principal from their retirement savings.

Here’s the news from MSN that generated the inspiration for this weeks blog.

Senator Hatch says insurance firms can ease U.S. pension crisis

By Lisa Lambert

WASHINGTON (Reuters) – A top Republican senator unveiled legislation on Tuesday that would radically change public pensions by having life insurance companies pay benefits through annuity contracts, helping to alleviate the underfunding that has engulfed many plans.

The bill introduced by Utah Senator Orrin Hatch, the highest-ranking Republican on the Finance Committee, would have the government pay a premium each year to a state-licensed insurer in an amount equal to a set percentage of salary. Employees would then receive fixed income annuity contracts from the insurance company.

“A new public pension design is needed, one that provides cost certainty for state and local taxpayers, retirement income security for state and local employees and one that does not include an explicit or implicit government **guarantee,” Hatch said in a speech to the Senate.

Annuities function similarly to pension plans by paying set amounts in regular installments. The accumulation of annuity contracts would even out interest-rate fluctuations, according to Hatch, who would have insurers competitively bid for them.

Underfunding is “not possible,” he added.

The bill would not cover past pension liabilities, but allow state and local governments “to stop digging the hole with their existing defined benefit plans,” said Julia Lawless, a spokeswoman for Hatch. [… Read more at MSN]

Annuity Rates, Caps and Fees

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“What are your best annuity rates?” This is how about 50% of our phone calls from website visitors start out after they visited AnnuityGuys.org .

As independent advisors, fortunately, we are able to offer our clients the best fit from dozens of companies including those with the highest rates, best caps and lowest fees. So, if you find an annuity with the best **guaranteed rate, the highest cap and the lowest fee, you have found the best annuity – right? Probably not. We do not believe that one perfect annuity exists for achieving the most common retirement objectives.

There may be a best choice to accomplish a chosen goal with one specific annuity, whether it be growing money safely and consistently; generating a secure and increasing income; or passing wealth to children. However, trying to use one annuity when three are actually needed often causes frustration in looking for that one best annuity solution.

Video: Annuity Guys® Dick & Eric explain rates, caps and fees can impact your retirement.

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


 
As Annuity Guys®, we get excited about the increases in rates and caps from many of the most popular companies. In addition, many companies are developing innovative strategies to allow for additional growth opportunities and added benefits.  Yes rates are going up, caps are going up and fees have stabilized; but we recommend you consider annuities for what they **guarantee, not what they “potentially might do” if things go well.


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.
  10. Market Free™ (annuities, retirements and portfolios) refer to the use of fixed insurance products with minimum guarantees that have no market risk to principal and are not investments in securities.
  11. Market Gains are a calculation used to determine interest earned as a result of an increasing market related index limited by various factors in the contract. These can vary with each annuity and issuing insurance company.
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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!

Hybrid Annuities as an Inflation Hedge

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Inflation – this one word strikes terror in the hearts of many retirees on a fixed income.

Never to fear, we have a cost of living adjustment (COLA) in Social Security to help save us — maybe not the more generous COLA that we have come to expect if the President and Congress decide they should balance a portion of the budget by restructuring the consumer price index (CPI) formula used to calculate increases in social security income.

Can annuities be used to hedge against depleted spending power in retirement? Certainly! Today’s hybrid annuities are bringing forth solutions for just that concern. Annuities developed by multiple insurance companies are now offering options to tie annuity income to inflation tracking indexes such as the CPI-U. This creates an additional option to other strategies used by advisors in the past such as laddering annuities.

Watch as Dick and Eric discuss the potential change in the CPI and what annuity strategies you might consider if inflation is a concern for you in retirement.

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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.

Check out this article from Walter Hickey on what the change in the CPI  might mean for Social Security.

How Obama’s Plan For Chained CPI Is Both A Stealth Tax On The Middle Class And A Cut In Benefits For Grandma

Last week it was revealed that the President’s budget proposal will include a revision to the way the government calculates the impact of the rate of inflation as a concession to House Republicans.

Still, a switch to chained CPI from the current rate demonstrably cuts benefits to seniors and could be a stealth tax on primarily the middle class.

The Consumer Price Index (CPI) is used as a proxy for the annual cost of living adjustment used to keep federal benefits in line with inflation.

There are several different ways that economists calculate the Consumer Price Index, according to the AARP Public Policy Institute.

  • CPI-W is the current cost of living adjustment index for Social Security. It reflects the spending habits of households where the income comes from a wage earner.
  • CPI-U expands CPI-W to reflect the spending habits of the retired, professionals, the unemployed and self-employed as well as wage earners.
  • A new, experimental CPI-E looks exclusively at how the elderly spend their money.

“Chained CPI” refers to another adjustment, particularly to CPI-U.

As an example, CPI-U and CPI-W already incorporate people switching from Starbucks coffee to homemade when prices increase.

Chained CPI-U takes that a step further — the idea that when coffee gets more expensive, people switch to orange juice. It incorporates more switching.

When it comes down to it, Chained CPI-U spits out a lower rate of inflation than regular CPI-U, which already spits out a lower rate of inflation than the current CPI-W. As a result, were the government to switch the way they index cost of living adjustments to chained CPI-U from CPI-W, payouts to seniors would increase at a much slower rate.

This means that over time, seniors receiving Social Security see their benefits cut. [Read More at BusinessInsider.com]

 

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.


Fiduciary Retirement Review
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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.
  10. Market Free™ (annuities, retirements and portfolios) refer to the use of fixed insurance products with minimum guarantees that have no market risk to principal and are not investments in securities.
  11. Market Gains are a calculation used to determine interest earned as a result of an increasing market related index limited by various factors in the contract. These can vary with each annuity and issuing insurance company.
  12. Premium is the correct term for money placed into annuities principal is used as a universal term that describes the cash value of any asset.
  13. Interest Earned is the correct term to describe Market Free™ Annuity Growth; Market Gains, Returns, Growth and other generally used terms only refer to actual Interest Earned
  14. Market Free™ Annuities are fixed insurance products and only require an insurance license in order to sell these products; they are not securities investments and do not require a securities license.
  15. No Loss only pertains to market downturns and not if losses are incurred due to early withdrawal penalties or other fees for additional insurance benefits.
  16. Annuities typically have surrender periods where early or excessive withdrawals may result in a surrender cost.
  17. Market Free™ Annuities may or may not have a bonus. Some bonus products have fees or lower interest crediting and when surrendered early the bonus or part of the bonus may be forfeited as part of the surrender process which is determined by each contract.
  18. MarketFree™ Annuities are not FDIC Insured and are not guaranteed by any Government Agency.
  19. Annuities are not Federal Deposit Insurance Corporation (FDIC) insured and their guarantees are based on the claims paying ability of the issuing insurance company.
  20. State Insurance Guarantee Associations (SIGA) vary in coverage with each state and are not to be confused with FDIC which has the backing of the federal government.
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  22. *"Best” refers only to the opinion of Dick, this site's author; or the opinion of Dick & Eric in videos and is not considered best for all individuals.
  23. *"APO” refers only to the Annual Pay-Out of annuities in the guaranteed lifetime income phase. *APO is NOT an annual yield or an annual rate of interest.
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  29. Any recommendation of an advisor is only one aspect of any due diligence process. Each site visitor must accept full individual responsibility for choosing a licensed insurance agent/advisor.
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Is an Annuity the Wrong Choice for You?

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Should I or shouldn’t I – that is the question.

Many of our site visitors struggle with the decision to choose an annuity for a portion of their retirement. No one wants to make a poor decision regarding their retirement security yet the volume of commentary on how to structure retirement is overwhelming.

How do you know if you are making the right decisions?

If you are considering an annuity for a portion of your retirement income or safety of principal, we would encourage you to focus on the **guarantees. If you can be happy with the **guarantees, then anything above the or **guaranteed growth is icing on the cake.

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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.

Insider Owners Manual

This week we are sharing with you one of our new annuity tools that we are  making available in our premium section – The Annuity Owners Manual. This concise brochure summarizes the types of annuities and the type of person who might consider these different annuities. Also, it poses a few key questions that you want to get answered prior to sitting down with a local advisor. Click here or on the booklet for your copy.

Dick and Eric discuss highlights of the Annuity Owners Manual and why you’ll want a copy for yourself.

Why do Wives Prefer Annuities?

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Before everyone starts yelling gender discrimination, we know that husbands can prefer annuities too.

However, it is not uncommon for us to have a conversation with men who let us know right from the get go, “I don’t like annuities,” but I have to do something to take care of my wife if I’m gone. As guys, we typically think of ourselves as providers and view it as our responsibility to provide for our families. This should not be construed as being a denigration of  women (although my wife would tell me I’m digging myself into a hole right now) but rather a somewhat stereotypical view of men and stereotypes can have some basis in fact.

So why would many wives like annuities? Well, it’s not actually the annuities but rather what they offer that appeals to most wives. Annuities offer a stable lifestyle by providing a stable, safe lifetime income. Annuities are as close as we can come to a “set-it and forget-it” retirement.

Watch Dick and Eric explain to husbands why their wives prefer annuities.

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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 article that prompted this weeks entry.

Guess what? Your wife loves annuities

Recently, I was speaking in front of a national gathering of individual investors and traders about a topic that most of these market mavens cared nothing about … annuities.

Because this event was located in a tropical location, these future Gordon Gecko’s were accompanied by their wives, who just happened to be sitting by their loving masters of the stock universe during my presentation.

As it always happens when I speak at these events, as soon I start pointing out that annuities should be in place for lifetime income, lifestyle, and a worry free retirement that doesn’t involve the stock market, wives start elbowing their husbands as a reminder of who wins all arguments.

My 14-year-old daughter’s friend, Eloise, pointed out in a recent shuttle service I provided to their dance class, “every time my mom and dad argue about anything, it seems like my mom wins … so I think my mom has all the power.”

As my daughter immediately agreed and said that it’s the same in her house as well, I turned to Eloise and said that no truer words had been spoken, and that she is way ahead of the game with her insight.

As you know, your wife could give a hoot about finding the next great stock or guessing the future price of gold. Your wife cares about one thing and one thing only … lifestyle. Lifestyle to her is not a five-star mutual fund^. Lifestyle to your wife is knowing that she will have enough money to live comfortably if something happens to you. It’s being able to go see the kids and grand kids. Lifestyle to your wife has nothing to do with the Dow Jones or anything related to Wall Street. The only thing that she cares about (if she told you the truth, and might have already) is having enough money coming into the checking account for the rest of her life.

Here’s where the love affair with annuities comes in. When you add up your pension (if you are so fortunate), Social Security payments, and other investment income, there might be a gap in the amount of required that needs to be filled. Annuities are the only strategy that can provide a lifetime income stream that you and your wife can never outlive. When I mention that statement, that’s when your wife’s elbow hits your rib cage as a subtle reminder that this is the only type of investment she cares about. [Read more from MarketWatch on why Your wife loves annuities…]

Millions of Pensions Dumped – Can Annuities Fill the Gap?

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Every time you turn on the news it seems we are bombarded with information on pension reform or the scaling back of retirement benefits. In 2012 Ford and General Motors began offloading their pension liabilities and based upon a recent AON Hewitt survey many other business are considering following suit.

What will that mean for the retiree who counted on that lifetime income? What options will they face? Is it doom and gloom or perhaps a new opportunity to take better control of their own retirement?
Watch as Dick and Eric examine this changing trend in retirement funding, what opportunities it creates for individuals and how annuities may play a role in creating a pension styled lifetime income.

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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.

Over the last 12 months we have reviewed lump sum buyout opportunities with many individuals and discussed whether or not an annuity might work for their situation. When we ran the numbers – some individuals were better off with their company options when it came to **guaranteed levels of income… but until you run the numbers based on each individuals situation you can never be sure.
See the report from insurancenewnet.com that led to this weeks entry below.

Survey: More Employers To Offer Lump-Sum Payouts In 2013

LINCOLNSHIRE, Ill., Feb. 13, 2013 /PRNewswire/ –Last year marked a watershed moment in retirement benefits as numerous companies decreased their pension risk exposure by offering participants a one-time lump-sum pension payout. A new survey by Aon Hewitt, the global human resources solutions business of Aon plc (NYSE: AON), reveals more employers plan to follow suit in 2013.

Aon Hewitt surveyed 230 U.S. employers with defined benefit plans, representing nearly five million employees, to determine their current and future retirement benefits strategies. According to the findings, more than one-third (39 percent) of defined benefit (DB) plan sponsors are somewhat or very likely to offer terminated vested participants and/or retirees a lump-sum payout during a specified period, also known as a window approach, in 2013. By contrast, just 7 percent of DB plan sponsors added a lump-sum window for terminated vested participants and/or retirees in 2012.

“There is no question, employers are looking for new ways to aggressively manage their pension volatility,” explained Rob Austin, senior retirement consultant at Aon Hewitt. “In 2012, many DB plan sponsors were exploring options and planning their strategies—we think 2013 will be the year when many more actually implement large-scale actions such as offering lump-sum windows. Pension Benefit Guarantee Corporation (PBGC) premiums will begin to increase in 2013 and 2014, which will increase the carrying cost of pension liabilities and give plan sponsors an economic incentive to transfer those liabilities off their balance sheet.” [Read More…]