Selecting the Best Annuity & Retirement Income Advisor

With hybrid annuities, being good for nothing in the bad years is actually one of the best features! There is a phrase in the hybrid annuity world, “zero is your hero”, and it is derived from the feature of fixed index annuities which allows you to participate in the upside of a stock market index without suffering any losses due to…[continued below video]

Video: Watch as Annuity Guys, Dick and Eric, look at the power of zero for retirement security.

 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.

[continued]…poor stock performance or even serious losses. For example; many hybrid style annuities are linked to the performance of the S&P 500 and when the S&P 500 was down over 38% in 2008, those indexed annuity holders were credited with a 0. Which would you have rather had, a loss in your $500,000 portfolio of $190,000 or simply zero gains and your $500,000 stays intact during that same time period? In 2008, you were most likely bragging about your zero – if you were that fortunate.

The next question when trying to determine if a hybrid or fixed index annuity might be right for you is what are you willing to give up in exchange for never having any losses due to market downturns? Would you accept a limitation on your growth potential? The answer for many retirees has been a resounding YES. The research shows that retirees who can avoid significant losses to their portfolio in the first 5 to 10 years of retirement have a great chance of never running out of money. The reason is simple math. For example, a couple with a $500,000 portfolio who can comfortably withdraw $20,000 out annually to meet their income need only needs a 4% annual average gain to maintain their principal balance and lifestyle without fear of running out of money. However, what happens if the market corrects and they lose 30% of their portfolio ($150,000) and they now have $350,000? Do they keep withdrawing the $20,000? Hoping and waiting for a market rebound – considering that they will need a market rebound of about 43% – if your portfolio has a loss, it takes an even greater return to overcome the loss to get you back to where you started.

Hybrid annuities help retirees take the risk of stock market loss off the table and smooths out the volatility of the markets. Fixed Index Annuities can offer solid growth allowing retirees to capture a portion of the market upside while insulated from market corrections. Are you are ready for “zero” to be your “hero” for a foundational portion of your portfolio?

Here is a similar article by Anton Hendler at Annuity123.

Pros and Cons of Fixed Index Annuities

“Beauty is in the eye of the beholder”, so the saying goes. So it is that with an article of this nature, it depends on who is writing it and that persons perspective as no two people will share the same opinion. So let us nail our colors firmly to the mast, so to speak, and share with you that we promote Fixed Index Annuities (FIAs) to our clients and are firm believers in their place in any Retirement strategy.

Now that we have our ‘disclaimer’ out of the way, let’s turn to the subject at hand. We will not even attempt to provide a comprehensive list here of all the pros and cons (in no particular order) but will merely touch on what we believe to be the major points and, again, these may differ from another person’s view.

Pros of Fixed Index Annuities

• The power of annual reset. What this means is that every year on the anniversary of the policy, any gains in the market (based on the strategy which you have chosen and an index such as the S&P 500) will be credited to your policy and then ‘locked in’. So if the market goes down in the next year, not only will your value not go down (you will stay level) but the gains made in the previous year that were locked in are yours as well. This can be compared to a ratchet on a jack for your car. As you move forward (up) you are protected from slipping backwards (down) by the ratchet (click here to learn more about annual reset).

• No downside risk. Following on from the first bullet, it follows that whilst you share in a portion of market gains (and these are locked in every year) you do not share in market losses. If the market goes down in any year, your prior year ‘locked-in’ value will stay level. That is, it will not go down or up, but will remain at the prior year’s value.

• Sharing in the market upside. What one has to remember with FIAs is that you are not invested directly into the market. As such, you do not get the full amount of any increase in the market, but share in the growth in any year. Your growth is limited by devices such as participation rates and caps so if the market goes up by 8% and you have a 100% Participation rate with a 5% cap, then you will get 5% growth in that year. Funds are not invested by the insurance company directly in the market, but they buy options in the market. If the market goes up then the insurance company exercises those options and pays you your percentage of the increase. If the market goes down then the insurance company essentially ‘burns’ the options and you get nothing.

• The power of zero. Getting a return of zero in a down year sounds, at first, like a con but it is a very significant pro. Take the example of a market that goes down by 20% in year one. In year two, you will need it to go up by 25% just to get back to where you were. So the power of staying level in that down year suddenly looks very compelling compared to taking a ‘hit’ and having to climb your way back up to where you were before you can start to show gains in your principal again. [Read more at Annuity123]

The post When is Zero Good News for Hybrid Annuities? appeared first on Annuity Guys®.

Dick and Eric reveal the reason why people would choose a hybrid annuity and then provide a list of the “moving parts”.

**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.

Some of the “Moving Parts” that may be in a Hybrid Annuity

• Contractual Guarantees (absolute, non-moving)
• Income Riders
• Index Strategies
• Annual Point-to-Point with Caps
• Annual Point-to-Point Average Spread
• Annual Point-to-Point Monthly Average or Sum
• Annual Point-to-Point with Participation Rate
• Caps
• Spreads
• Fees
• Uncapped Index
• Blends
• Biannual Point-to-Point
• Quadrennial Point-to-Point

Annuity Guys® Video Transcript:

Dick: Eric, we hear it all the time.

Eric: “They’re too complicated!”

Dick: We see it all the time that hybrid annuities or fixed index annuities are too complicated.

Eric: “There are too many moving parts. How can you explain these things to me? It doesn’t make sense. There’s too much!”

Dick: Well, there has to be something to this because everywhere you look, that is one of the most prominent things that are written about annuities, in general. I don’t care if it’s a variable. Sometimes they say immediate annuities are simple and they are in general, but there are a lot of different parts to an immediate annuity.

Eric: Oh no, they’re simple.

Eric: They’re immediate, immediate gratification. I give you this much. You send me a check for this much.

Dick: Okay, so if these are too complicated, why should somebody even consider getting one?

Eric: Well, there’s the **guarantee aspect.

Dick: Right, that might have something to do with it.

Eric: Well, maybe a contractual **guarantee would be a good thing.

Dick: I think that might be one of the reasons why these have become so popular.

Eric: You think?

Dick: Folks, when you look at an annuity and you look at all the moving parts, there’s no question it can become very complex, very complicated. If you get lost in all of the things about an annuity, you’ll miss some of the main points, which are what you just said Eric, it is the contractual **guarantee.

Eric: That’s right when you go, and you start looking or considering an annuity for retirement, typically. What do you need? What are you solving for? Do you need lifetime income and if you do, how much? Then you look at what you have and if you purchase an annuity, this is what the minimum **guarantee is. That is the key element of a purchase of that level. What’s the minimum **guarantee?

Dick: So if I want to know that I have a certain level of income, at a certain age that is just flat out **guaranteed and I’m satisfied with that and that meets my retirement objective, then why do I have all these other moving parts?

Eric: Well, I think we refer to it maybe as gravy or icing, depending on which type of plate you prefer.

Dick: That’s what we talk to our clients about is if we can first of all, make sure that we’ve met your objectives, and that you’re satisfied, and that is absolutely iron-clad **guaranteed, then anything we can get that comes with the moving parts is extra.

Eric: That’s right. That’s what you have to understand. Working backwards, I think is the best way to look at it. It’s what do you need? Is it income? Is it growth? When we look at growth, what’s the **guaranteed rate? You know what’s the **guaranteed rate of return? If we get more than that, will you be disappointed? No.

Dick: And we might achieve a higher rate, by utilizing a death benefit.

Eric: Exactly. It’s another **guarantee. The **guarantee may come from the base of the contract or it may come from a rider.

Dick: That’s right.

Eric: But those riders are part of those contractual **guarantees, it’s built into the contract.

Dick: Yes, when we talk about moving parts and things being complicated, I know a lot of folks that are watching have had experience with mutual fund^{^}s and different items of this nature. When we think in terms of prospectus, how complicated is that?

Eric: Well, you’re assuming one thing, people have read the prospectus. Most people don’t bother to pick up the prospectus they get from a mutual fund^{^}. They don’t want to read the 40-50-200 pages of information, in print this small. They just don’t want to look at it.

Dick: And if you do read it, I mean obviously there is a certain complicated aspect to it, and yet it’s very similar when you’re looking at an annuity, from the standpoint that there are some parts of it that can seem complex.

Eric: Right and it usually has to do with the growth potential side, in both the mutual fund^{^} and in the annuity world. It’s that aspect that creates the sizzle, I think as you call it.

Dick: Truly, we’re aware of this because we’ve seen it, where an advisor or an agent is overzealous trying to sell an annuity. They paint this picture of all this upside potential. No downside risk, but a lot of upside potential. That is not always going to be the case. In fact, it’s just way overstated.

Eric: People take the marketing components of everything and talk about the potential. When we talk to prospects, clients, whoever here, we’ll have someone come in and say “I just talked to this guy and he talked about this 7.0% or 8.0% **guarantee.”

Dick: Right 7.0% or 8.0% growth and compounding.

Eric: Yeah, and it’s **guaranteed. And then we always have to pull them back a little bit and say that may be on the income rider portion. Now it’s a contractual **guarantee component, but they have to understand that that’s a number they can only use for income. As long as that meets their basic need, it’s part of that contractual **guarantee, but they have to understand how it works.

Dick: Right, exactly. Folks, there are genuinely a lot of different aspects, especially to a hybrid annuity or what we would call a fixed indexed annuity which is the hybrid annuity. Eric, I thought we’d just kind of run down this list and we’ll put this on the blog site.

Eric: List the moving parts here for you.

Dick: Yeah, and maybe we could aim for next week or something, to get a little more into each moving part.

Eric: I think that would benefit most of the people we speak with, because the confusing part, the complication comes from the moving parts.

Dick: And I would say, folks don’t get too hung up on this, because we’re going to make it sound real complicated here. The fact of the matter is that, if you’ll truly focus on the contractual **guarantee aspect, you’ll understand that these are just options that you have, that can be used. And that’s where you do need an advisor, to help you to make those decisions, on what might give you greater potential.

Eric: All right, so what are the moving parts? You made a list, because we didn’t want to forget anything and I’m sure we will forget something.

Dick: Our biggest challenge will be not to actually start describing these, as we go through them. He’s just going to read the list.

Eric: We decided it would take way too long to describe each one individually in this episode.

Dick: Well, I’ll tell you what, you want me to just go ahead and read it?

Eric: Yes, read them.

Dick: Okay, we’ve got first of all the annual point-to-point with a cap. There’s an annual point-to-point with an average, where the index is again, averaged over the course of a year, and typically there will be a spread in there.

Eric: See, he’s explaining them already. He’s trying to explain it. See now your head’s starting to spin isn’t it?

Dick: Okay, I’ll stay on track. Here I go, annual point-to-point with a monthly average, or also called monthly sum. Annual point-to-point, with a participation rate could be 100% could be… There I go; caps, spreads, fees, uncapped indexes, blends, two-year, four-year, three-year, five-year point-to-point.

Eric: Points, yeah. I’m sure we left out something.

Dick: I did pretty good.

Eric: He finally reined it in a little bit. He really wants; we really do want to break it down for you.

Dick: We will. It’s tough not to start explaining, folks.

Eric: We really do want to break it down for you.

Dick: We will. We’ll break it down more.

Eric: Give you a reason to come back and check the email registry.

Eric: We appreciate you tuning in today.

Dick: Thank you very much.

The post Are Hybrid Annuities too Complicated? appeared first on Annuity Guys®.

**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.

What are Hybrid Annuities?

Hybrid annuities, also referred to as hybrid income annuities, are essentially a type of insurance contract allowing the account owner to allocate his or her assets into a fixed annuity with a market benchmark component, having an income rider or riders that give substantial present or future **guarantees to secure a variety of retirement objectives.

These annuities refer to a combination of several unique aspects of various types of annuities that have been combined. Technically, a hybrid annuity is a fixed index annuity with an innovative new generation income rider attached to it.

Some hybrid annuities can help to resolve the concerns with regard to other needs in addition to asset growth and retirement income––such as long-term care funding or wealth transfer to heirs––while still providing one with a secure income. These annuities are considered by many to be the answer to satisfying a combination of retirement objectives combined into one solution, thus having the potential to solve several issues in retirement.

Obtaining a hybrid annuity essentially works the same way that you choose any annuity, in that making an allocation begins by choosing the hybrid annuity after comparing rates, features and ratings that meet key retirement objectives and then funding the hybrid annuity contract with a licensed agent as the final step.

With some hybrids, if funds are required for needs such as long-term care, with certain hybrid annuities, owners can have access to withdrawals for that purpose by way of an accelerated cash account payout or a **guaranteed increased income payout, in some cases for as long as it is needed. However, if they do not need the funds for that purpose, they will receive their lifetime **guaranteed retirement income just as it was structured or use the annuity for moderate growth as a secure asset foundation to balance their portfolio.

Annuity Guys® Video Transcript:

Dick: We’re going to talk about hybrid annuities today. We’ve have a lot of different subjects, and a lot of times, Eric, we touch on hybrid annuities. But let’s talk about why they’re so popular and maybe, before we actually get into that, let’s talk about what they are.

Eric: Oh sure. I was ready to talk about why they’re so popular. What is a hybrid annuity? People call up and say, “Well, I’ve been talking to this guy about a hybrid annuity.

Eric: Then the first thing I do is I say, “Stop,” because hybrid unfortunately has become a marketing term for a lot of individuals.

Dick: A hybrid annuity, to us, is the fixed index or fixed annuity, usually with an indexing component, and then it has a rider typically that **guarantees income for life. These are like the newer, more innovative income riders. I know you run into this. I run into it. Folks will start describing a variable annuity^# to me, and they’ll start saying it’s a hybrid. They may have just confused it with a hybrid, or they may have been told it’s a hybrid.

Eric: In all fairness to the variable annuity^#, it was really the first one to have those riders that would give income for life.

Dick: That’s true.

Eric: So if you think of just that rider being that contextual piece that makes it more of a hybrid. Well, in my mind those pieces were always part of the variable. They weren’t part of the fixed. So the fixed has kind of morphed its way, to use a different term I guess, into that variable.

Dick: How long has it been that fixed annuities? I’m going back I would say . . .

Eric: I’m much too young to know.

Dick: I would say that it was about somewhere seven years ago that the riders on the fixed annuities really started to pick up steam. And like you say, on the variable annuities^#, they’d already been kind of a mainstay for the variable annuities^#.

Eric: Right. I think what they saw was the variable annuity^# market had a lot of traction. People really appreciated for life without having to give up their assets.

Dick: Without annuitizing

Eric: Right, annuitizing. And that’s where we always talk about the immediate annuities, that’s the component they have. You can get income for life, but you have to give up your assets. So why people are attracted and what makes hybrid annuities so popular is that aspect of, basically, income for life **guarantees without having to give up your assets. You can still pass on money to heirs. You can still change your mind. You have majority access as we like to say.

Dick: Yes, or majority control.

Eric: Majority control. So the aspect of the hybrid annuity is actually very popular for those specific reasons right now. The other thing I see right now, especially in today’s economy, when you look at where rates are, as far as what’s being paid on the growth side, not extremely attractive.

Dick: It’s not very good. It kind of goes back to the bank CD rates, savings rates, and money markets are all effected typically by the ten year Treasury, and we have that same effect on the annuities. If we said they’re paying double what the banks pay, it’s still not very much.

Eric: No. Two times nothing is still nothing.

Dick: Exactly. So you might be looking at a 2% to 3% range maybe on a fixed annuity or even a fixed index annuity. And yet, on a recent report, Eric, that we were just talking about, the LIMRA Report, it showed that people purchasing annuities, those sales are down pretty dramatically, except for the fixed index, which is what we consider the hybrid.

Eric: Which is the base of the hybrid.

Dick: Exactly. And let’s just say that for the sake of conversation, folks, in today’s annuity world, the mainstream hybrid annuity is considered the fixed indexed annuity with one of the newer income riders on it. So just for the sake of clarification, when you’re speaking with people, you really have to clarify terms. Ninety percent of what’s talked about on the Internet and what’s talked about, advisor to client and advisor to advisor, is a hybrid annuity is a fixed annuity with a newer, innovative type income rider on it.

Eric: That’s right. And those are the pieces right now that are for the upcoming retirees, basically or near retirees, as I like to think of them. That’s what makes it really attractive, because those companies are still providing some of those **guarantees in deferral for the growth component on those hybrid annuities.

That’s the other aspect of that income rider usually. It’s I’m going to **guarantee a certain percentage of growth in deferral. Right now, we’ve got in the range of 4%, 5%, 6%, 7% still available in that deferred growth. So for somebody who’s thinking about retiring in the next five to seven years, if you’re uncomfortable with what you think is going to happen in the market necessarily and you want that **guarantee, it’s **guaranteed and predictable. Those are two aspects that give near retirees comfort.

Dick: Well, and this is where, when we go back and we compare it to the variable annuity^# and we say sales are down in variable annuities^#, and yet they’re up in indexed annuities, there’s not as much potential on an indexed annuity for growth. People aren’t interested today so much in potential and growth as they are in **guarantees.

Eric: Safety and **guarantees.

Dick: Safety and **guarantee of principal, and I also say there’s one more factor that makes these so popular and that is cash flow, because we spend our life, our careers building our money up and saving, and we look at growth. So we’re accumulating net money. But what are we accumulating it for?

Eric: To spend it.

Dick: We need to spend it, effectively and efficiently, and that’s what the hybrid annuity does, is it allows you to know what type of cash flow you’re going to have throughout your retirement, to ladder it, stage it, cover some inflation hedge aspects. I believe that’s what’s driving the popularity of this hybrid annuity.

Eric: Yes, I would agree. I would say 90% of the questions I get about annuities are about hybrid annuities. When I talk to people, I say the best thing about a hybrid you work backwards. Tell me what income you want and when you want it, and I can use a hybrid annuity . . .

Dick: And we’ll tell you the least amount of money to put in to get there.

Eric: To get there. People are like, “Yes, that’s what I want. I want that predictability, reliability, and **guarantees, those contractual **guarantees.”

Dick: So, folks, we hope that this has cleared up some of your concerns and potential misconceptions, or confirmed the things that you already know about a hybrid annuity. It’s very much a part of the financial planning community today and what’s being used and what’s effective. Anything that we can do to give you more clarity and maybe some direction on these hybrid annuities, we’ll be glad to do it.

Eric: And hopefully we explained why they’re so popular right now.

Dick: Yes.

Eric: Thanks for tuning us in.

Dick: Thank you.

The post Why are Hybrid Annuities so Popular? 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®.