Why are so many folks choosing hybrid annuities for their retirement?
Let’s summarize the four key elements most retirees are looking for that make a hybrid style annuity so attractive.
- The opportunity to participate in gains if the market does well.
- Principal Guarantees, eliminating the concern of losses due to market downturns.
- Lifetime income **guarantees.
- Access to the annuity’s account accumulation dollars.
This is typically the time where everyone stops and thinks – “If they are really that great, everybody should consider them! There must be some hidden catch.”
Watch as Dick and Eric discuss the quandary of choosing the hybrid annuity over other types of annuities.
**Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified.
The summary presented above is presented often, while an over-simplification – all of it is true, but like all retirement options it has both pros and cons that need to be considered before handing over your life savings or the retirement account 401k(s)and IRA(s). Annuities should be thought of as long term retirement financial solutions offered by insurance companies. Do not be sold a hybrid annuity based upon their recent popularity, combined with an overzealous insurance agent. Hybrids can be a great fit for a portion of many retirees portfolio, but due to the competitive nature of the industry the products can be a bit complex. Every insurance company wants to claim some unique advantage so that they in turn can have a marketing edge which is why no two annuities are exactly the same. This often frustrates consumers simply wanting to buy the best annuity who soon realize that they are almost impossible to compare due to their many differences.
Do not despair. Work with an expert advisor that specializes in working with annuities as part of a balanced portfolio. This expert should be an independent agent or advisor that can look out for your best interest helping you to compare and choose the best annuities that meet your unique objectives, risk tolerance and time horizon. The right advisor will simplify the process and enhance your confidence in being able to make the best decision.
Another Hybrid Annuity Opinion Article.
Deflating the hype about hybrid annuities.
The word “hybrid” is being embraced by annuity agents nationwide to describe an annuity as the best thing since sliced bread. What’s with all the hybrid hype?
For many years, I drove the original hybrid car offered in the U.S., the Honda Insight. As you probably know, the car used both battery and gas in combination, and a lot of Americans now embrace this technology for their choice of automobile. I put over 275,000 miles on that car and averaged over 60 miles per gallon, so I can consider myself well versed when it comes to the word hybrid.
When I pulled up the word “hybrid” on Dictionary.com, I expected to see an annuity reference because of how the industry is now using the word, but I only saw definitions related to automobiles, plants, and animals…and nothing about annuities.
Let me start by reminding you that with any annuity sales pitch, “If it sounds too good to be true, then it is.” No exceptions. With that foundation in place, the hybrid annuity hype that is currently being promoted in the annuity world can be easily explained with two words: Multiple benefits.
The hybrid pitch is now showing up on the local-lunch annuity seminar circuit and is really being pushed heavily by the online annuity promoters and appointment setters. Wooed by display ads and “instructional” videos that sound too good to be true, people are falling for the hybrid dream to the tune of hundreds of millions of dollars annually.
Most of these annuity buyers have no idea what they own and how the product works, but they do remember one word when they call me to validate what they have done or are getting ready to do. That word they hang on to is “hybrid,“ and the product that is normally attached to this gas/battery powered dream is a long-term, high-surrender-charge, very- high-commission indexed annuity.
A hybrid annuity simply means that the annuity policy can do more than one thing, and provides multiple benefits under one policy structure. Hybrid does not mean it’s appropriate for every person the agent talks to, but that is certainly how the majority of these annuities are sold.
It’s hard for me to believe, but I’ve been told that there are actually ongoing arguments within the industry concerning who came up with the correlation between the words hybrid and annuity. I’m assuming that it’s due to the fact that the industry has discovered that this word combination sells a lot of annuities.
I find this word fight somewhat humorous because I remember over 15 years ago annuity wholesalers in the brokerage world using the word hybrid to explain variable annuities# with multiple benefits. But that was way before annuity blast emails, the ever-annoying annuity pop-up and display ads, and “bad chicken dinner” annuity seminars. It’s also way before over $250 billion of annuities were being sold per year.
You have to admit, “hybrid annuity” sounds cool, catchy, and modern on the surface. However, I equate this new nickname to a deferred immediate annuity now magically being referred to as a longevity annuity. A hybrid annuity simply means that the annuity offers more than one benefit. Remember, it’s not about the market, it’s about marketing!
Most annuity structures, in my opinion, can be classified as offering multiple benefits within the policy…and therefore can attain the new noble status of being a hybrid. I have listed the majority of annuity types available and their corresponding hybrid benefits below. My apologies to the “one size fits all” indexed-annuity hybrid hype-sters out there who think they are holding the hybrid annuity holy grail, but facts are facts—most annuities offer multiple benefits.[…Read More from MarketWatch]
Video Transcription:
Eric: Hi, I’m Eric.
Dick: And I’m Dick. We are the annuityguys.
Eric: We are, Dick. And, you know what, today we’re talking about hybrid annuities which is one of the most popular topics that we discuss with people when they call in.
Dick: Well, and we have a lot, Eric, on the website about a hybrid annuities; a lot of… about as in depth as you want to go. Let’s just start off with hybrid. Who coined this term? Who started?
Eric: I’m going to guess it was the Latins but i don’t know what they… I was going to say you see it all over the place.
Dick: Hybrid annuities…
Eric: Who would want something that is a hybrid? Hybrid cars… it’s got to be better, right? It’s a hybrid.
Dick: Well, I would think that maybe this has something to do with marketing.
Eric: You mean not everybody has the hybrid stuff? It’s not exclusive? Yes, it’s definitely a marketing term.
Dick: It has that, like you say, the sizzle.
Eric: Sizzle.
Dick: Right, but sincerely, hybrid typically means that you know it’s something different than the traditional and it adds something to it and so there is a fair description of a hybrid annuity. And I remember when the variable annuities# were called hybrid annuities.
Eric: How? It’s because they had that income rider, it made it better than expected normal variable annuity#. It was a hybrid and that’s exactly, in our world, we describe a hybrid annuity as being a fixed or fixed indexed annuity with an income rider.
Dick: Yes and some of the newer income riders are very innovative and so what this combines and what we gives it this hybrid mentality is it combines the of an immediate annuity, it combines some upside potential from market index of a variable annuity#, and it also combines the lifelong **guarantees. Now, I think I said that of the immediate annuity.
Eric: And the principal protection on the fixed annuity.
Dick: Yes, principal protection is correct.
Eric: We got the foundation, you get some upside but you’re not going to go backwards. And that’s what lot of people want. They want growth still, they want some of that upside potential, they don’t want to go backwards. Once you get close to retirement heavens knows you don’t want to loose money but if the market keeps going and runs long, you want to participate. Dick: You want to see some growth in your account.
Eric: So that’s where the formula is. For me, the hybrid really fits that but the other thing is when can you pair it kind of the immediate annuity which has been very popular for retirement, I don’t have to normally without immediate of giving up my principal to the insurance company.
Dick: You’re losing control of the money that you work your entire life for…
Eric: And they’re going to give me allowance for the rest of my life.
Dick: Right. But if you ever need to get back into that money, you’re lock out of it. Your heirs are not going to participate in it to the same degree is if you maintain control over your account value. This is where the hybrid…
Eric: The flexibility comes into play.And who do we typically talk to or spend most part of our time speaking with when we’re talking about “is the hybrid the right product for you?” I can tell you, in my discussions that’s usually something that’s five to ten years from retirement to being in retirement, they usually have some time to defer some dollars or they want the flexibility because a lot of the sizzle with the hybrids are on these income riders and they’re promising six, seven, eight-percent growth as long as that money’s in deferral for future income. And that’s what I always have to explain; that’s the funny money bucket. When you start talking about ledgers, it’s not the lump sum accumulation dollars but its it’s what set their for your future income.
Dick: It’s very important if you’re really trying to plan your future income you don’t want to go backwards, you want to be going forward, you want to have a hedge for inflation and future needs; So very key, very important but that’s what makes it the hybrid so attractive is the the income rider in addition to the safety and security.
Eric: It’s that **guarantee; you know what the fixed style, you’re not going backwards. You still want… everybody wants to have that upside potential so having the opportunity to be involved in an index and get some of that growth if the market goes really hot and heated, you want to participate. Now, the other thing is you’re not locking yourself in things change and we have lots of innovation in this marketplace. Ten years from now, eight years from now, whatever your products up or surrenders.
Dick: Somethings much better.
Eric: You got an opportunity to make it changed.
Dick: Yes. Where if you had the immediate annuity then you already made your decision. So when we really get down to the types of people that would buy a hybrid, consider a hybrid annuity, comparing it to may be an immediate annuity; what would be the difference in the way that a person would look at that?
Eric: Well, let’s talk a little bit about the immediate annuity because a lot times we’ve got people now on the IRA, the 401K world that have these lump sum. We also think a pension sounds real nice; well, if you want that pension style where when you’re gone, the money is gone. That’s an immediate annuity. I you want to take care of your heirs, you’re more worried about leaving a legacy; the immediate can be structured a little bit to continue on.
Dick: To get some of that money over.
Eric: -But it’s not really have the same style of benefits and features that you can get with a hybrid annuity. And also immediate annuity officially starts right away.
Dick: You start your income money right away as a rule. Now, a hybrid annuity – you can also in many cases start your income right away If you’re going to be starting an immediate annuity right away and a hybrid right away, your immediate annuity as a rule, not always, but as a rule is going to upstart with a little higher payout.
Eric: Yes, and a lot of times when you’re speaking with somebody you might actually consider both of these as part of your structured annuity retirement portfolio.
Dick: And that’s where we get into a more advanced strategies where you’re using them…
Eric: So it’s not to say that they’re exclusive; you only get to pick one – that is the nice thing about the features – but with a hybrid you’re usually utilizing the other benefits that come associated with it; whether it be income for life, money going on to heirs, long-term care, home health care benefits – all those pieces come into play and then conversely when compared to a variable annuity# with those riders,
Dick: That where we want to go next…
Eric: -You’re looking at a fee structure that typically on a variable, Dick, a little bit higher.
Dick: You got all of the riders and everything included, you’re somewhere in that three to five percent range. So when you’re looking at the variable annuity# – even though we say unlimited upside, it has a very strong limiting factor because of those high fees. That’s another thing that on the hybrid you avoid the bulk of the high fees.
Eric: You heard dollar-cost averaging most likely. Well when you start calling dollars out of a portfolio there’s reverse dollar-cost averaging. You’re probably pulling dollars out while the markets lower more often than you are when it’s higher. It’s something to be taken into consideration.
Dick: Which you don’t have to worry about with the hybrid annuity. So if we get down to choosing a hybrid annuity, what are some of the just the real basic thing people should be considering?
Eric: If you’re looking at a hybrid annuity, you’re typically looking at: you want some growth, you want some upside potential, you want principal protection…
Dick: Security.
Eric: -You don’t want to go backwards, flexibility, and typically you’re looking for income for life.
Dick: And you may also in that mix want to keep some control over your money.
Eric: Flexibility.
