Selecting the Best Annuity & Retirement Income Advisor

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

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

A New Twist on Variable Annuities

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

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

The pros and cons of variable annuities^#

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

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

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

Annuity Guys® Video Transcript:

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

Eric: Saying nasty things about buying a variable?

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

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

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

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

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

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

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

Eric: We can’t get those right now.

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

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

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

Eric: Then ‘shh’.

Dick: Yeah, going up from there.

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

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

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

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

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

Dick: True.

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

Dick: Think twice.

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

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

Eric: Right. There’s some bad ones.

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

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

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

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

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

Eric: Don’t have the **guarantee.

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

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

Dick: That’s right.

Eric: Thanks for checking us out today.

Dick: Thank you.

The post Is an Old Variable Annuity Better than a New Hybrid? appeared first on Annuity Guys®.

Eric and Dick examine one of the most unknown or misunderstood aspects of annuities available today’s market.

**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.

Definition of ‘Free Look Period’

A period where a new annuity owner is able to terminate their annuity contract without penalties or surrender charges. A free look period often lasts for 10 or more days (depending on state law and the insurer’s terms), allowing the contract holder to decide whether or not to keep it; if he or she is not satisfied, the contract purchaser can receive a full refund effectvely releasing them from the annuity contract to re-consider or choose other alternatives.

Investopedia explains ‘Free Look Period’
During the free look period, the purchaser can continue to ask the insurer questions regarding the contract in order to better understand the policy. If refunded, the amount given back may equate to the value of the account at cancellation or to the amount of purchase payments, depending on the state.

Annuity Guys® Video Transcript:

Dick: Eric, you know most people don’t realize they actually have a 100% money-back satisfaction **guarantee on an annuity.

Eric: That sounds awfully tempting. Now you have to explain does this last forever for as long as I own the annuity? Oh okay, so the 100% money-back…

Dick: No, there’s a catch. You have a window of opportunity.

Eric: Could this be the free look period?

Dick: This is the free look.

Eric: Okay, so now when you say free look, now we have to explain free look.

Dick: Well, the states each state has decided that this is too big of a decision to not have a time to look at your contract, your annuity contract. A time period where you can look at your annuity contract, you can reassess your decision, and have that time period they call that free look.

Eric: Okay, so I’ve decided I want to purchase an annuity. My friendly agent shows up at my door. Mr. Van Dyke here is your policy. Congratulations, you own an annuity. So is that when the clock starts ticking?

Dick: That is when the clock starts ticking, and folks what you’ll typically have is a delivery receipt that’s signed, and when that delivery receipt is signed from that point forward, you have this period of time that’s **guaranteed by every state. That time period will vary. Each state has its own limitations on that.

Eric: Minimums, the minimums are…

Dick: Ten days are the minimum.

Eric: I don’t think I’ve seen one less ten days.

Dick: Not less than 10, but some up to 30. I don’t believe they go beyond 30. Now a lot of states will have a say 10 day, but yet the company will give 30 days.

Eric: Right, so sometimes the company’s **guarantee is better than what the state minimum is, so that provision that allows us to review the policy at our discretion, we’ve taken ownership of it; it’s in our hands, we can then truly go through it; without any penalty or ramification other than I get my money back.

Dick: Correct, and the importance of this Eric, we’ve found in our own practice so many times people have hesitation from different viewpoints. Sometimes it’s a hesitation just to get started, because their afraid once they get started and they start moving down a road, they like something, they start to question if they should move forward.

But what we’ve really been able to help our clients with is understanding that they actually do have this 100% money-back **guarantee, so that they can actually move forward with confidence. That even at the point where they’ve made their decision, the money has transferred, the company has it, they now have their contract, we can still make changes.

Eric: Right, you can still undo.

Dick: It can be completely undone, right.

Eric: It’s the major undo button, and that’s what I think works to the consumer’s advantage.

Dick: Yes, it does.

Eric: So it’s an understanding that even once you’ve made the decision, you’ve got the policy in front of you, and that’s I think the key thing. You’ve actually got what the insurance company is going to present you with. All the details, the documentation those things should be explained within the documentation.

Dick: True.

Eric: So as the agent goes over it with you, if for some reason there’s something you don’t like, you have that opportunity to still get out of that initial decision. Some people have buyer’s remorse, and we always talk about it. This is your return. Typically, you only get to do it once, so you should feel comfortable about all those decisions.

Dick: A good understanding about what you’re doing and know that your comfort level is pretty strong.

Eric: Right, and so if you’ve gone in. You’ve got the policy. You’ve asked the questions and for some reason you don’t feel good about the answers or whatever, you’ve got a period of time to either one, do some additional research, make some additional calls or to back out.

Dick: Eric, I do have to say that there are what, I guess I would call bad advisers or bad agents that don’t like this provision, because basically they’re closers. They want to go in and close an annuity and sell an annuity, and they’re not so concerned about what the clients getting. They’re more concerned about their own benefit.

But a good adviser, a credible, serious financial planner or retirement planner will actually take their time and they actually like the free look provision, because they want the client to be very comfortable, with whatever it is they are deciding.

Eric: For people like us that take pride in our practice, in what we do, we want to make sure you fully understand everything you have. Everything has pros and cons.

Dick: Right, there are tradeoffs in everything.

Eric: It’s all part of the understanding process. We’re not saying you can eliminate the cons by using a 100% money-back **guarantee in the free look provision. It’s just understanding what you own and that you’re comfortable, with all of the aspects of what you’ve purchased.

Dick: Right and when we even look at our own practice, we go back over the last seven years or so, how many free looks have we had? One; and that was just changing life circumstances that caused this person to have to rethink what they had decided, but it really can really help relieve some of the stress, from the client being able to make that decision, and at the same time make a good decision.

Eric: Yes.

Dick: So is there really, when we really think about it, is this really a 100% money-back **guarantee?

Eric: It is, because you can undo. Now the big caveat there is the time frame. You have to do it within that provision. Knowing you have at least 10 days I think for every state, but understanding that’s that your time frame. You’ve got it. Look at it. That’s your time. Once those days are gone, so is that provision.

Dick: And there’s nothing wrong, folks with asking your adviser right up front, how long would I have to look at this, before I would actually have to pretty much, stay with my decision. And that doesn’t mean you are going to free look it. It just means that you really want to know what your rights are.

Eric: Right, you want to understand everything that’s there. I think we’ve covered it.

Dick: Yes, we have. Thank you for joining us today.

Eric: Have a great day.

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