These studies failed to point out the impact of hybrid annuities — Dick and Eric discuss Why… hybrid annuities are the real “Game Changers”.

**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.

Advisors Say Annuities Are Now Their Most Requested Product

Advisors report that clients request annuities more than any other unsolicited product, according to new research from Cerulli Associates.

Annuities ranked sixth in 2011, but interest in the product has increased over the last year, marked by a 15% increase in the number of times clients request annuities from their advisors, according to the report, Annuities and Insurance 2012: Evaluating Growth Capacity, Flows and Product Trends.

“We’ve seen a tremendous year-over-year increase in the number of times financial advisors receive requests from their clients for annuities,” Donnie Ethier, senior analyst at Cerulli, said in a statement.

Of the advisors surveyed, 60.8% of advisors had clients who requested annuities, just above Roth IRAs, which 58.8% of advisors were asked about. [Read More…]

More Consumers Use the Internet to Research Insurance and Annuity Products

Study Finds Agents and Advisors Still Play a Vital Role in the Purchasing Process.

WINDSOR, Conn., Oct. 10, 2012 — Sixty-one percent of consumers who researched individual insurance or annuity products looked online, a significant increase over the 38 percent of consumers who looked online in 2006.

“With two-thirds of Americans conducting searches online, it is not surprising that the number of people seeking information about life insurance and annuity products online has increased more than 60 percent over the past six years,” said Mary Art, research director, LIMRA technology research. “However, despite the popularity of online sources, more consumers (69 percent) sought information from agents, brokers and advisors, who are often viewed as the most valuable and influential information sources.”

The top three reasons consumers sought information online are:

1. Research companies and product offerings
2. Seek general product information
3. Compare prices

This is true across all age-groups and income levels.

The study found that more consumers value information gathered online in 2012 than did in 2006, although it still lags behind insurance professionals. In 2006, only 18 percent of recent researchers considered Internet sources to be their most valuable sources, significantly less than the 25 percent found in 2012. In contrast, 37 percent of consumers rate insurance professionals as most valuable in 2012, eight percentage points lower than those who did in 2006. It is also important to note that one in six (16 percent) consumers cite workplace sources as most valuable.

“Companies need to understand that one size does not fit all when it comes to educating consumers about products and services,” noted Art. “Using a multi-channel approach will reach a broader audience in the ways they want to collect information and will most likely lead to more sales.” [Read More…]

Annuity Guys Video Transcript:

Eric: Today, we’re going to talk about why hybrid annuities are game-changers in today’s environment.

Dick: They have changed the annuity world.

Eric: That’s right. It’s not just playoff time in the baseball season. It’s the game-changing time here in the annuity world.

Dick: That’s right.

Eric: There’s a couple things that have come up in the news recently, for some reports that have talked about annuities in general, so we should probably start there, in the fact amongst advisors the Number 1 question they’re getting asked now is about annuities. They want to know what’s . . . it’s the most-requested product out there.

Dick: Right. that’s moved up from a year ago, Eric, where it was asked, it was the Number 6 question on the list and now it’s moved up to the Number 1 question. What do you suppose is driving that?

Eric: Our website, probably. Obviously if you’re watching, this you’ve been driven to inquire about annuities.

Dick: You know what, that brings up our other article, which we’ll tie them all together here, is that the consumer now, about 60% of the consumers are going online, investors are looking at annuities and trying to decide how that fits into their portfolio, and they’re relying on the internet for that.

Eric: Right. There’s a lot of numbers we can throw out here: 10,000 people a day are turning age 65. People are retiring, that’s an obvious number. More and more people are retiring, so what do you want? You want safety, security, income.

Dick: Right. You want to get money over to heirs; you want to do it the most efficient way.

Eric: People are concerned. When you look at the problems that Social Security, Medicare, all these government programs are having, they’re looking to other avenues for safety and security. What better than annuity? That’s really what we talk about, with the foundational aspects of annuities being safety, security, and income.

Dick: When you look at this number, you threw a statistic out there, 10,000 a day. Folks, that equates to 78 million Baby-Boomers over the next 15 years. Baby-Boomers are some of the folks that are most comfortable with the internet. The first ones in, not so much. Now as we see this trend begin to change where folks rely on that online information to make their decisions.

Eric: That’s right. They’re turning more and more online to get a little bit of information, and they’re curious about annuities. These two articles didn’t surprise us because, surprisingly or not so surprisingly . . .

Dick: We got our beak both worlds.

Eric: . . . we tend to talk to quite a few people about annuities . . .

Dick: We’ve seen that volume go up, and up, and up.

Eric: That’s right. We can personally say from our own website that started with just our little Central Illinois focus, we now have a national focus.

Dick: It’s just mushroomed out, exactly. Yet there’s really a larger percentage still, about 69% of individuals also want to get their information from someone on a local basis. It’s a mixture of the two that work so well. I think that’s where we come in, Eric, in trying to do both. We run our local practice, so we meet with our clients. We have this national website, which is, folks, it’s loaded with information that you can do your research. Then we’ll actually take that next step and help you get involved with a local advisor.

Eric: All right. Now we’ve said all these things, now what the heck does that have to do with hybrid annuities being game-changers? I can tell you when I talk to people, and I can tell you, out of 100% of the people I’ve talked to today, almost every single one asked me about hybrid annuities and what the potential was for either inflation hedging or deferral. We know that the hybrid annuity has really become a game-changers.

Dick: What will maybe, like you say, a 100% today, and at least 10 to 1, 5 to 1, 10 to 1, when folks call in, they may have an interest in an immediate annuity or a variable annuity^#, but it always tends to come back around to the hybrid annuity, which really is the fixed indexed annuity with some of these new income riders. Folks will ask us about that and kind of want us to explain it.

Eric: Really, we always talk about . . . I talk to people about working backwards from your goals to figuring out, one is an annuity a right vehicle, and then how do we meet those goals? A lot of times, we’ll end up looking at those income riders to meet those goals, because I like **guarantees. That’s what those income riders and those . . .

Dick: Contractual **guarantees. If we can live with the **guarantees, anything else is icing on the cake.

Eric: Icing. I like icing. What are the **guarantees that are possible with a hybrid annuity? You have income **guarantees; income for life without giving up your lump sum.

Dick: Right. It’s predictable income that can grow over a period of time.

Eric: You have some annuities in the hybrid world that those income riders can actually produce an increasing income **guarantee, which is unique and innovative. Then the deferral aspect of those income riders; right now, everybody knows interest rates are . . .

Dick: Down.

Eric: Boo. These unique components the insurance companies are offering on these income riders is as **guaranteed growth rollup for money that can be used for future income.

Dick: Right, while it’s in deferral. That way you have this predictable future income; there’s no surprises. The only surprise could be something that would be better than the minimum. Not likely though with today’s cap rates.

Eric: Right. It’s neat when we find something that’s innovative, that we think is going to outperform, but most of the time, we’re not trying to beat the insurance company. You want the insurance company to be in business as long as you’re going to need . We’re looking for, basically, something that provides both you and the company a **guarantee. They’re going to be both in business.

Dick: The way that the hybrid annuities really have changed the game is a lot of folks, as we would say, your parents’ annuity was an immediate annuity. That immediate annuity carried the stigma of, “I have to give the insurance company all of this money, and if I die, they get to keep it?” That didn’t go over well, as you can imagine.

Eric: It helped them build a lot of big buildings.

Dick: Yet the hybrid annuity comes along and says, “We’re going to work it out so that you can have a the rest of your life, and you can also have your lump sum. If you haven’t used it all, it can just pass on to your heirs.”

Eric: Right. If you don’t’ use it all, we’ll actually give you it back. Whatever you haven’t used, you get it back. Very unique, very innovative, taking the best of the variable world that was very indicative. Now we’ve seen, from a performance standpoint, what’s being offered in what we see people purchasing more often now. We had an article or a blog we did, it’s been about a month ago, the enhanced numbers, what you see the most growth in the annuity world.

Dick: That was the LIMRA Report. Folks you can go back, 3 or 4 blog posts back.

Eric: We’ll put a link out there.

Dick: Another link we’ll put in there. The only area there’s been growth.

Eric: Yeah, it grew, what, 10%?

Dick: Yes. Year-over-year, or [inaudible: 07:27].

Eric: Versus some of the other types of annuities that are actually . . . they’re still being sold, but there just not the growth there.

Dick: Right. Yeah, folks, the hybrid annuities have really had explosive growth and there’s a reason for that. People are cautious and careful about what they do. We live in an information age where folks can go online; they can find the truth out about things. You can fool a few people part of the time, but you can’t fool everybody all of the time. These are legitimate, suitable products if they’re used the right way, and many people are very, very pleased with them.

Eric: That’s right. If you’re looking for safety, security, but yet, not willing to give it all up, consider a hybrid annuity. It’s a game-changer.

Dick: It is a game-changer.

Eric: Thanks for watching today.

Dick: Thank you. Bye now.

The post Why Hybrid Annuities Are Game Changers appeared first on Annuity Guys®.

What benefits or options are you seeking to get from your annuity that you could not get from an IRA placed in another financial vehicle?

Many CPAs have a blanket answer when questioned about IRA dollars being used in annuities –  it goes some thing like this “No. Your IRA already has tax deferral so their is no advantage to obtaining an annuity with your IRA dollars.” That answer for many retirees is incomplete at best! What about safe asset growth, income **guarantees, or income for life – not to mention a potential IRA “tax trap”?

For more insights into the IRA/Annuity question check out this short video.

**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.

This is a question that has been debated many times… check out this MarketWatch article by Robert Powell from 2005 for more insights into this discussion.

Do annuities belong in an IRA?

BOSTON (MarketWatch) — It is, without fail, one of the all-time great debates in the financial-services industry. Do annuities — variable, fixed or index — belong in an IRA? The answer, unfortunately, depends on who you ask.

Firms that manufacture and distribute such products, not surprisingly, say yes. And consumer advocates, also not surprisingly, say no, citing among other things a suit filed last week alleging that a major insurer improperly sold variable annuities^# for use within an IRA.

Consumer advocates and industry experts point out it’s unwise to invest solely in a tax-deferred product, an annuity, inside an IRA which also offers tax-deferral. “Since money invested in an annuity grows on a tax-deferred basis, I’m not a big fan of using them in IRAs,” says Ken Little, author of “The Idiot’s Guide to Annuities.”

Others, including the National Association of Securities Dealers, agree. Don’t invest in a variable annuity^# inside an IRA solely for its tax-deferral is the upshot of one notice the NASD sent to brokerage firms it oversees. And insurers don’t dispute that advice. Heather Dzielak, vice president of Lincoln Financial Group’s annuity business, says this: “If (a person’s) primary goal is tax deferral, variable annuities^# within IRAs offer no additional tax advantage over the IRAs inherent tax deferral feature.”

But Little, the NASD and others do leave the door open for investors to put their money into such products for other reasons, especially if they understand the costs associated with the benefits they are buying.

For instance, some experts say investors who want, in addition to tax-deferral, certain **guarantees — **guaranteed interest rates, a death benefit, or what insurers call living benefits (**guaranteed minimum accumulation benefits, **guaranteed minimum withdrawal benefits, and **guaranteed minimum income benefits) — and don’t mind paying, in some cases, about 2 percentage points for those **guarantees might consider using an annuity in an IRA.

[Read More…]

Annuity Guys® Video Transcript:

Dick: Eric, frequently, we see articles from the investment industry, from CPAs, just financial magazines, and they talk about an IRA not belonging in an annuity.

Eric: That’s good. We’ve had clients, even the last couple of months here, they’re retiring. They’ve got 401Ks. They have these qualified buckets. It’s time to start spending these dollars. That’s their savings for retirement.

Dick: All these years, they’ve put this money away for their retirement to produce an income.

Eric: They’re starting to think about spending down their 401Ks or their IRAs.

Dick: What do their CPAs tell them?

Eric: “You’ve already got tax deferral in an IRA and 401K.”

Dick: Why would you want an annuity with tax deferral? That is the standard argument that’s used. What’s wrong with that argument?

Eric: You mean you can’t have double tax deferral?

Dick: Why would you need double tax deferral?

Eric: You can’t get that.

Dick: You don’t need an annuity. Is that why people buy an annuity? Is that why people use that for a portion of their portfolio? For tax deferral?

Eric: No. That’s what we always say. There’s no universal answer, but when it comes to tax deferral, do you need a double tax deferral? No. What are the other benefits that they really offer to you?

Dick: The reasons why, right.

Eric: You have IRA dollars; you’re saving for retirement. You’re now going to start to spend your retirement. What does an annuity do for you?

Dick: Safety, security, income **guarantees. In a down economy, in a volatile economy, it’s a sense of knowing where you’re going to be today or 5 or 10 years from now.

Eric: Just because I have an IRA it doesn’t mean I automatically get income for life?

Dick: No, you do not.

Eric: But I have tax deferral.

Dick: Unless everything works out perfect or you have an annuity. In no way do we advocate with our clients or to those who listen to our videos that you put all of your money into an annuity.

Eric: No. When we hear CPAs automatically discount an annuity for IRA dollars or qualified dollars, we have to pull our hair out and see we’ve been doing this a lot lately, because it can be poor advice in a universal sense. You can’t just universally say, “No, you should never put IRA dollars or qualified dollars into an annuity.”

Dick: It makes more sense when you’re younger to think that way, when you’re in that accumulation portion of your life, where you’re growing your dollars. It wouldn’t make a lot of sense to buy an annuity when you can have your money invested where it can potentially earn more and grow. No, that portion, but what happens is that same argument that’s used during those years doesn’t get carried over into the retirement years. It actually gets carried over instead of that transition where things change. Let me ask you a question here to get off the subject a little bit; where are taxes going?

Eric: Taxes?

Dick: Are taxes going down or up?

Eric: Let’s see here. If I had to be a betting man, I don’t think Vegas would give me good odds on this, but I would guess they’re going up.

Dick: I think you might be right. I think most of the folks that are watching this will agree with us. If taxes are going up, then what do I have if I have a pile of money I’ve never paid tax on?

Eric: You got a good deal, because you never pay tax on it.

Dick: What’s going to happen to it?

Eric: Is the government going to make me take these dollars and pay taxes?

Dick: Do you think maybe I have a trap here that I’m caught in, a tax trap? That’s what I see an IRA is, it’s very much a tax trap because we are likely to see increasing taxes as time goes by. Wouldn’t it make more sense to systematically be removing some money from that IRA, using it for the intended purposes of creating income and getting some money out of there so that it’s not all taxes in one large amount?

Eric: That sounds logical, but what would your CPA say? I’m making fun of CPAs right now.

Dick: What do CPAs do? In reality, when you think about it, they’re very, very good at saving us money on taxes in the year we’re going to file our return, or looking forward to the next year. Looking at the 20 or 30 years, a lot time . . . Folks, if you have one of those CPAs that looks 20 years down the line and projects things out for you, and look at ways to save you money, you have one of the rarest CPAs out there; they’re in the top 1% or 2%. Nothing against CPAs, they do a great job; they keep us legal, they save us money on taxes, but a lot of times, they’re looking at what can we save today. They’d rather defer some dollars from tax, not really thinking in terms of what’s happening with potential tax rates 10 or 20 years from now and getting that money out.

Eric: From a CPA’s standpoint, they’re thinking about tax now. Yes, if the answer is there a difference between a tax-deferred scenario between the IRA and the annuity? Of course not. If you’re saying, “What about the other benefits” Then, yes, that’s where the annuity, using qualified dollars makes perfectly good sense.

Dick: It does. When we say, “Never move IRA money into an annuity. Never buy an annuity with IRA money . . .”

Eric: Wrong.

Dick: Not.

Eric: Wrong. Take your personal situation and apply it. Basically, no, there are times when it does make sense.

Dick: There are. But everybody’s situation is different. They need to get a good advisor for that, a good local advisor. Thank you.

Eric: Have a good day.

 

The post Never Place an IRA in an Annuity? Wrong! appeared first on Annuity Guys®.

On top of that, the immense costs of healthcare today––along with constantly rising inflation––continue to compound an already stressful situation for many. However, there is an option available to retirees that can help ease the stress of outliving their savings while providing them with an income stream almost immediately upon funding it. That financial vehicle is an immediate annuity.

While many annuities are created to build up the account value for retirement, an immediate annuity is actually designed to provide income immediately to its holder.

**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.

Immediate annuities are insurance products that pay their owners a regular income––monthly, quarterly, or over another desired time frame––for as long as the annuity holder lives.

These products are essentially a contract between the annuity owner and an insurance company. They are typically purchased with a large cash lump sum by retirees in order to pay living expenses in a reliable pension style INCOME over a long period of time. In exchange for this lump sum deposit, the insurance company will provide them with a regular income for a specified time OR long as they live, regardless of how long that may be.

Plus, if it is a lifetime annuity, this benefit will continue for as long as the single or joint annuitant is living. Therefore, an immediate annuity actually pays for living a long life instead of the emphasis being on heirs receiving a large payout when the immediate annuity owner dies. It is possible for the immediate annuity owner’s heirs to receive some of the deceased owners intended income if he or she should die prematurely.

Immediate Annuity Features

Throughout the years, there have been some modifications to the original immediate annuity design. Many of these annuity features, which may or may not be available on all immediate annuities, or offered by all insurance companies, are discussed below:

Inflation protection: With this option, the immediate annuity income payments offer some form of a hedge against inflation. Here, the annuity owner may choose to have his or her income payments increase by a certain percentage each year, typically around 3 percent. Another choice may be to have the annuity income payments actually tied to an inflation rate by the use of a consumer price index. When this option is chosen the initial payout of the annuity starts lower.

Refund, liquidity, and withdrawal options: The traditional refund feature on immediate annuities has typically been either a cash refund or an installment refund that ensures after the annuity holder’s death that the beneficiary will receive an amount of money that represents the difference between the initial deposit amount and the amount of the income payments that the annuitant received during his or her life. This, however, reduces the amount of the systematic payout when comparing to life only with no beneficiary benefit.

There are several different ways to structure an immediate annuity with regard to the income payment options. These options include:

Life only: A life-only immediate annuity can also be referred to as a straight life annuity. This means that the annuitant will receive annuity income payments for the rest of his or her life, regardless of how long that duration may be. The payments will cease and all of the unused initial premium will be to the insurance company’s benefit or detriment based upon the annuitant’s actual death and life expectancy underwriting calculations.

Certain period: This structure is not considered to be a life annuity. Rather, the annuity payments will only go on for a fixed period of time, such as for ten years. Even if the annuitant is still living at the end of the stated time period, the annuity payments will cease at that time. However, should the annuitant pass away within that time period, the beneficiary will continue to receive the payments until the period of time has expired.

Life with period certain (or certain and life): This type of immediate annuity payment structure is a combination of both the life and the certain period structures, meaning the annuity will pay income benefits to the annuitant for as long as he or she lives. However, if the annuitant passes away during a specified period of time, say ten years, then the beneficiary will continue to receive income payments from the annuity until the end of that ten-year time period.

Life with cash refund: This can be considered a money-back **guarantee annuity. The income benefit payout is for life. However, if the annuitant passes away before the payments that total at least the amount of premium paid, then a lump sum payment is made to the annuitant’s beneficiary.

Life with installment refund: This, too, can be considered a money-back **guarantee annuity. This immediate annuity payout option is similar to the life with cash refund option, except the annuitant’s beneficiary will continue to receive the monthly annuity income instead of a lump sum until the full amount of the premium has been paid out.

Joint and survivor: This annuity income payout option will **guarantee that the income payments will continue for the lives of both annuitants. Along with this, period certain options can also be added. This particular payout option is typically used with married couples in order to provide income as long as either one of them is still alive. In some instances, the income benefit may drop when the first spouse passes away.

COLA SPIA: This annuity income payout structure has payments that increase or decrease by a floating percentage which fluctuates when tied to a consumer price index, each year. In this case, however, the initial income benefit will likely be lower than those that are non-COLA (cost of living adjustment) annuities.

Annuity Guys® Video Transcript:

Dick: Today, we want to talk about immediate annuities and do a little comparison with immediate annuities and why you might consider an immediate annuity.

Eric: One of the things we often hear, in today’s world, where you have this hybrid annuity, which gives you lifetime income as well as some other bonuses/extras, why would you ever want to actually look at using an immediate annuity, where you’re going to give up your assets?

Dick: Right. That is the difference, Eric. When we think about the hybrid annuity, it’s kind of your cake and eat it too annuity, where you can get your lifetime income, but you don’t have to give up your asset. Yet, there is a place for an immediate annuity.

In fact, let’s do a little history lesson. How about some trivia here? When we think about an immediate annuity, it literally goes back to the early Roman Empire. They called it the “annua,” and that’s where the word annuity comes from. So it is a very early form of an annuity, and it has really gone through the test of time, spanned the centuries.

Eric: So next time you have your toga on, you’ll know to get your annua language out. Exactly. It’s an old standard. It was the first kind of annuity out there, the standard lifetime annuity. You gave up a lump sum, and you got a lifetime income stream.

Dick: It is probably the truest pension-style income. In fact, immediate annuities, a lot of companies will offer a choice of a lump some or an immediate annuity.

Eric: I talked about immediate annuities with a lot of clients, when they were saying, “Hey, I’ve got a 401(k). I want a lifetime income. What can I do to get my own personal pension?” That’s kind of how we think of it. The thing is you’re usually giving up that 401(k) in exchange for that lifetime income stream. Now, the big thing here is you realize that none of those dollars are going on to heirs.

Dick: Yes. Well, in a true pension, there’s no money in a pension, as a rule. When you have a pension, when you pass, the money ends, or if you’ve chosen a survivorship option, you’ve probably taken a little bit lower payment on your pension, and then some of those payments will go on to perhaps a spouse.

Eric: Exactly. When I grew up, my parents were educators. So they had a traditional kind of benefit program, where they have a retirement that’s there as long as they live. The bad thing is, once they’re gone, nothing goes on to me. Being a little self-serving here now. The 401(k) plan . . .

Dick: Why didn’t they get a hybrid annuity?

Eric: Exactly. Why can’t they get a hybrid annuity? So when they’re looking at it, that’s the old style. The hybrid, on the other hand, allows you to pass some of those dollars on to heirs typically.

Dick: Right. So, really, where the immediate annuity fits, let’s just give some examples. Someone who really wants to start income right now.

Eric: With an traditional immediate annuity, typically you’re going to get a higher payout than you would with a hybrid. You’re going to start with a little bit higher. . .

Dick: Typically. But we have seen a few instances where . . . you’ve got to run some illustrations to know.

Eric: Exactly. So that’s one of the things that when people are going that direction, that’s usually the reason.

Dick: General assumption is you’re going to get more income.

Eric: A little bit more. A higher percentage to start with.

Dick: Right. Then the other key factor would be that, perhaps, if you’re going to use an immediate, you really aren’t as concerned about giving money over to heirs.

Eric: Right. Are there ways to get money on to either survivors or heirs? That’s one of the things we . . .

Dick: With an immediate?

Eric: An immediate annuity. You can structure it so that it’s a joint lifetime payout. So if you and a spouse purchase an immediate annuity, you can set it up so that it is the lifetime of both of you or either of you. Whoever lives the longest, those payments will continue. There are little tweaks that you can even do there, where you can set it up so that once one passes, it sometimes reduces by a percentage.

Dick: A percentage, so they only get three-quarters or one half of the annuity.

Eric: Right. The other way that you can somewhat pass on dollars to heirs is there are a couple of things. You can do a period certain, where it’s lifetime with a certain number of years **guaranteed. A lot of times you’ll see somebody do a lifetime annuity with 20 years **guaranteed. So that 20 years of payments is **guaranteed.

Dick: So if I pass in 5 years, somebody is going to get another 15 years of payments. But what does that do to my income?

Eric: It’s going to reduce your payments. You have to realize going in, if your goal is the highest payout possible, you don’t want to add any of these other pieces. But if you’re wanting to try to pass on money to somebody, that’s a way of **guaranteeing basically that some of that comes back. One of the things I always look at is either the installment refund or the cash refund, which says once you purchase the immediate annuity, if you haven’t gotten back at least what you paid in principal wise, that amount will be refunded either to your heirs or to your estate.

Dick: Well, isn’t that the installment refund?

Eric: The installment refund keeps the payments coming back to your return of principal.

Dick: Okay. So you’re talking about the full lump sum.

Eric: Yes, just a refund of whatever you’ve put in, so it’s either a lump sum or installment refund.

Dick: One of the biggest vulnerabilities that Eric and I look at with our clients, and what we think you should be concerned about, is inflation. That is probably one of the biggest vulnerabilities we face. We have had historic inflation the last 4 decades of over 4%. We believe that the stage is really set for some higher inflation over the next two or three decades, which is going to cover most retirees. So if we would happen to go through a stretch of 4% or 5% – I’m not talking about runaway hyper third world country inflation – but if we’re talking 4%, 4.5%, 5%, 6% inflation, that makes that immediate annuity, if you have no inflation cost of living adjustment, a COLA on it, it really puts you at a disadvantage.

Eric: Yes, especially if you’ve got longevity in what you’re looking at. You realize you’re taking a level payment and you’re stretching it over your lifetime. So your purchasing power is going to diminish with inflation.

Dick: Right. So one of the things that we do suggest, very strongly, is that whatever type of annuity, whether it’s an immediate annuity, a hybrid annuity, a deferred annuity where you’re deferring it for a long time, that you’re really taking inflation into account. There are different ways to structure for inflation, but if you’re not taking it into account, you’re really setting yourself up for a bad situation.

Eric: Right. That’s another aspect that you can add to an immediate annuity. Some of them you can add a cost of living adjustment. Others have a fixed percentage.

Dick: Tied to a consumer price index or a fixed percentage.

Eric: So those are things you can add, but you realize you’re going to start lower.

Dick: Your payments are going to start lower. Right.

Eric: So it’s all about the tradeoffs.

Dick: I love the idea of a real cost of living adjustment. So if things get carried away and we start seeing 5% or 6% inflation, we’ve covered a major vulnerability in a retirement plan.

Eric: Yes. That’s what we’re looking at here. When we’re looking at immediate annuities, we’re looking at you creating your own personal pension.

Dick: Yes, that’s right.

Eric: If you’re into this marketplace, where you’re going to create a personal pension, and you have that magic number you know that you need to hit and you can anticipate the growth, that’s where this product really comes in.

Dick: So if we’re to kind of wind up this discussion on immediate annuities, being a true pension-style income, where would we summarize that this is going to fit? What type of person should buy an immediate annuity, should really consider it for their retirement portfolio?

Eric: I always say it’s someone with no heirs, that doesn’t have to worry about passing on dollars to somebody in the future. They’re not worried about that. They want the highest payout now, and that’s really the person that I start with.

Dick: Right. I think that, in winding this up, we just want to say, do a fair comparison. You may be the ideal person for an immediate annuity, but get with a professional advisor, run some illustrations, compare it. We have actually seen situations where a hybrid annuity can right off the bat outperform an immediate annuity. It’s not often, but it does happen.

Eric: Yes. Very good.

Dick: Thank you.

The post Understanding Immediate Annuities appeared first on Annuity Guys®.

On the most basic level, a hybrid annuity is a fixed index annuity with an income rider attached to it.

Hybrid annuities can help to resolve the concerns of retirement income by offering **guaranteed annuity rates for growth on annuity income accounts. They also such as long-term care funding––while still providing one with a regular income. These annuities have the potential to solve several types of needs in retirement.

A hybrid annuity essentially works the same way that a regular annuity does, in that making an allocation begins by choosing the hybrid annuity that meets key retirement objectives and then funding the hybrid annuity contract with a licensed agent is the final step.

Dick and Eric look at the Hybrid Annuity in this short video explanation.

**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.

Annuity Guys® Video Transcript:

Dick: And folks as you can see at this point, we’re going to go into one more type of annuity here, which is really no annuity at all. It’s a combination of all the above, but as you can see, every annuity has so many different aspects and there are good aspects to each annuity that you really want to think this through.

You want to put some real thought into it. You want to work with an expert that can help you think through all of the variables, and the possibilities and really zero in on, what really is going to work best for you, what’s going to be most suitable. And maybe, as Eric said earlier, it’s no annuity at all.

However, annuities do answer some important questions to secure retirement, securing retirement income and one of the things that we want to talk about here, to just kind of wind it up is something that you’ll find terms over the internet and different ones that are talking about it, and that is a hybrid annuity, and what is different about a hybrid annuity? Eric, I’ve been talking here again. I’m getting you starting on everything. Go ahead let’s start off on a hybrid.

Eric: The hybrid annuity and again, we’re building here so you’ve got your fixed index chassis. Now when you start adding income riders onto a fixed annuity. . .

Dick: Right. And I think that’s, I just want to kind of zero in on that point you made, and that is that it is a fixed annuity. So first of all, we’ve got safety. It’s a fixed annuity then it’s indexed, so we add the indexing option.

Eric: That’s one of the options. You can also take that **guaranteed number. . .

Dick: Just a fixed…

Eric: … is just a fixed return. So those are all pieces, it’s that fixed annuity chassis, and then you’re going to add on top of it, usually the key component is the income rider. So we’re adding an income rider which gives us some of that immediate annuity flavor.

Dick: An income rider **guarantees.

Eric: Right, so what’s the one thing we love about an immediate annuity? It’s that income **guaranteed for life. Now wouldn’t we like to get that for life, without having to give up the lump sum?

Dick: Yes.

Eric: And that’s where the hybrid comes in. It’s that contractual income for life **guarantee, but without having to give up access to the whole.

Dick: Eric, and in our experience and I’m just going to throw the question to you. I could answer it, but in our experience how close can we come with the hybrid annuity, to matching the income of an immediate annuity, where we’re **guaranteeing it for life.

Eric: We come very close typically. There’s usually a couple percentage points difference. Where that fudge factor comes in per se is how long is it going to be in deferral? How long are you going to live?

Dick: What’s the age of the person?

Eric: Right, there are unknown variables that come into play, but the nice thing is we are able to **guarantee, typically a lifetime income higher than you would get, if you just left your money in liquid assets…

Dick: Oh, absolutely

Eric: … that you pulled out, because with a degree of certainty with an annuity you’re going to get that lifetime income. With the liquid assets you have to kind of take the ups and downs of the market and have that little bit more uncertainty. So this income rider…

Dick: You don’t have the contractual **guarantees that the annuity will give.

Eric: … will still give you access to the cash, the majority of your cash. I would say is probably the best way to think of it, with also using those life terms.

Dick: And that’s what I kind of say, is having your cake and eating it too, because with the hybrid style of annuity you can not only **guarantee income for life, but you can pass a lot of money on to the next generation to your heirs, if you haven’t used the money all for your income. And that depends on how long you live, and how much money that you actually take out of the annuity, where with an immediate annuity you’re going to leave very little, if any to the next generation. With the hybrid annuity you could leave the majority of it depending on life expectancy and that type of thing and you can still **guarantee your income for life. So if you happen to live a long life, now it is true if you use all of that money up, because you live a long time, then you really aren’t going to have—your income is going to continue as long as you live.

Eric: It’s an annuity, long time income.

Dick: But you won’t pass money on, because you’ve used it up.

Eric: If you spend all your money, if you drained all your savings accounts, in this case if you drained the annuity of the cash they will still pay you that income for life or whatever that contractual **guarantee amount was. Now you will not have anything to pass on to heirs, if you live long enough.

Dick: And you spend it, but they’re income will continue.

Eric: And that’s the best **guarantee you could have. You won’t out

The post What are Hybrid Annuities? appeared first on Annuity Guys®.