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Choosing an Annuity

Choosing an annuity is made out to be the most difficult decision in the world but it really doesn’t have to be.  There is a logical progression to be made when making a choice.   In this post I will go over the steps that need to be taken to make the right choice.

Before getting into the steps,

I would like to point out a few key points that will help you along the way.  The first is that there is not a “best” annuity for every thing or a company that has the “best” annuity for all situations.   Insurance companies jockey back and forth to offer the best product for a certain situation. They do not try to have the best product for every situation.  Also, they do not  keep their product competitive for long.  Usually an insurance company will offer a very competitive or the most competitive product for only 6 to 18 months and then they will lower rates.

The other important point is not to simply go by a company name.

Insurance companies lean on their reputation heavily to get a prospects business.  They will use the name as a way to offer a less than competative product to the public and it works.  People will blindly buy an insurance companies product simply because of the company offering it.  This is a sure fire way to make sure you are not getting the best in class product.

The first and most important step when picking an annuity is to determine what you want it for.

This sounds simple and silly but it is the most important part of the entire process and the most common mistake people make.  I cant count the number of times I have talked to someone who is about to purchase an annuity because of some incredible feature it has.  The problem is that the feature usually will do little or nothing to help them with what they need the annuity for.  You need to figure out what you are trying to accomplish.  There are a limited number of things people want to accomplish with money and a limited number of areas where an annuity will work.  Here are the most common ones.  It is critical to determine which you fit into.

• Draw a future income stream at some future date
• Immediate income draw
• Grow a lump sum of money to leave to heirs
• You want to grow a lump sum of money to use for a known future expense or purpose

Once you determine what you are trying to accomplish, it becomes much easier to find the best product to accomplish the goal.

For example, if you want future income, the best way currently is to use an annuity with an income rider or if you need immediate income your best bet is to use an annuity for that purpose called a SPIA.  If you want to leave the most money to heirs possible, you would use an annuity with a high death benefit roll up feature and so on…..

By determining your need, you can identify the right type of annuity to use to get the job done.  Once you determine the type of product needed, you then need to find out which company has the best “highest paying or earning” product of that type.  For example, if you need an immediate income, you would use a SPIA.  The highest paying SPIA’s are currently offered by Symetra, Great American, Guggenheim and NY Life.   This will change over time but they are at the top currently because they will pay out the most money immediately.  If you need income 5 years from now, you would use an idexed annuity with an income rider and the highest paying company would be Security Benefit SIA Annuity.  Again, how long will they be able to say they pay the most?  No one knows for sure but right now they pay the most.

I had a person call my office and he was told Met Life would work the best to generate income of $320,000 7 years from now.  (he was 58 years old)

The representative he spoke with said Met was the best.  At the the time, Forethought was paying out the most income of any carrier for a person that age.  I ran the guaranteed income payout for Forethought in 7 years vs. the Met life payout and the forethought income beat the Met Life Income by $5,000 a year for the rest of his life and his spouses life.  There is a 70% chance either he or his wife will live to at least age 90 based on current life expectancy.  At a difference of $5,000 a year, this would add up to a $125,000 mistake had they gone with the lower paying product.  (25 years multiplied by $5,000)

It can be a chore  choosing an Annuity and finding the highest paying company for a specific product type.

To accomplish this, make sure you work with an independent agency that holds all contracts.  I spend a great deal of time maintaining active appointments with every company offering any type of competitive product for this exact reason.  This way I am able to ensure I am showing people the best option for their specific situation.    Feel free to call or email me if you have questions or need advice.

There are more people than ever looking to use a lump sum of money to create a guaranteed future income stream.  Fixed Indexed annuites are usually the most predictible way to do this and they also offer the highest future guaranteed life payouts.

As a result, there are a number of companies offering these types of products and there are even more people selling them.  This includes brokers, insurance agents, CPA’s and CFP’s.  The fact that they put their clients in anything other than the Securit Benefit Secure Income Annuity is disturbing.  Why do I say that?  The reason is that the Security Benefit product has the highest guaranteed payout.   Simply put, they pay a higher income payment than any other company. There is not a trick to the comparison. Its very simple, if you give a company an amount of money, how much will they pay you as an income stream at a future date?  Security Benefit always wins.

If a client is using a different company to create future income, they are not getting the best payout available. Most often this is because the client or the advisor they use are not familiar with Security Benefit. Other times, it relates to the fact that the advisor is not contracted to sell the product.

A Security Benefit illustration is attached. Security Benefit SIA example 100K 59 yr old This is an illustration for a 59 year old male, investing $100,000 and turing on income at age 65. The guaranteed  payout is $8,914  per year for life.  Challenge your broker, financial planner or insurance agent to find a higher payout. I promise you they will not fine one.

* Be aware that Security Benefit has two similarly named products. The Secure Income Annuity has the highest payout.   The Total Value Annuity does not pay out as well but is very unique in its own right but for different reasons.   For more information on the Total Value Annuity click here.

Call Edward Crowe with questions or concerns at 203-796-5403 or by email at Edward@Croweandassociates.com

When someone is shopping for an annuity for life, it can mean multiple things based on their understanding of annuities.  Usually they are looking for either an immediate annuity or a deferred annuity.

If someone is looking to put money into a product and start to draw income immediately, they would be looking for an immediate annuity.  With an immediate annuity, people give the insurance company money in return for a guaranteed income stream for life.  In the past this could be a bad deal for a consumer if they died prior to their life expectancy but now most annuites come with a guaranteed return of premium feature to avoid this problem.   The most competative immediate annuities change on a monthly basis but these companies usually are among the most competitive….. Genworth, The Standard, Lincoln, Equitrust, American Equity and Great American.  They commonly have some of the higher immediate annuity payouts

Take warning: the current interest rate environment is not friendly to immediate annuities.  As a result, you will be subject to very low interest payouts currently.

The second meaning of “annuity for life” is usually someone looking for a deferred annuity.  This means they want to put money in now for a guaranteed payout later.  There are many advantages to a deferred annuity two of which are the higher interest rate they earn and the predictability of them.

The best method for a deferred annuity is to use a fixed indexed annuity with an income rider.  The fixed indexed annuity market was very competitive at one time but it is currently dominated by Security Benefit.  If someone wants deferred income they should be using either the Security Benefit Secure Income Annuity or the Security Benefit Total Value Annuity.  They simply have the highest payouts, end of story. If someone uses a different indexed annuity to produce future income, they are making a mistake.  This sounds harsh but it is the reality currently. This could change any day if a different company comes out with a new product or if Security Benefit makes changes to both products.

This blog holds other articles specific to the Security Benefit products.   Click here for more info on the Secure Income Annuity and Click here for more info on the Total Value Annuity.  Feel free to call Edward Crowe at 860-992-4494 or email at Edward@CroweandAssociates.com

Life Income annuities have been around for a long time.  The concept is straight forward.   You hand over a lump sum of money to the insurance company and they show you how much they will pay as income for the rest of your life.  There are a number of payout options such as a “Straight life payout” (They pay the money until you die), “Life pay with return of premium” (They pay for life and will pay any unused portion to a beneficiary if you die too soon) and a number of other options as well.

Life pay annuities are valuable when used in the right situation.  They can provide guaranteed income and are not subject to market fluctuation.  In other words, you can rely on the payout no matter what. Wikipedia has a very good article on life pay annuities that is worth reading (click her for Wikipedia article)  The only real drawback to the life income annuity is that you are giving up control of the lump sum asset.  Other lump sums should be maintained in the event it is needed.

In many cases, clients can obtain a better payout by using an indexed annuity with an income rider.  This approach always works better when someone is willing to wait a few years before starting income.  Using an income rider will allow you to know exactly how much income you can have at a future date such as 2, 5, 10 even 20 years down the road.   We always use the company that has the highest payout at the time and currently Security Benefit is the one paying the most.  They win in almost all payout scenarios.  Click Here for Security Benefit Info   This option also allows the client to maintain access to the lump sum investment which can have advantages over the traditional life annuity.

If a client is looking for immediate income, the traditional life annuity will often have the highest payout.  Given that insurance companies are constantly competing with each other to have the highest payout, it is prudent to check the market to make sure you are getting the highest payout possible.

Call (203-796-5403) or email Edward@Croweandassociates.com if you have additional questions or would like to obtain  information or quotes.

Guggenheim currently offers a fixed annuity with the best rates available.  The annuity is a fixed annuity with terms ranging from 3 to 10 years.  The product works in the same fashion as a CD. The terms are fixed for the period selected.  At the end of the term, the money can be rolled over or taken out of the account.

Guggenheim is currently offering 2% on a 3 year term, 3% on a 5 year term and 3.7% on a 10 year term.   Rates sheets and product guides are available in the links below.  If you have any questions, please call Ed Crowe at 203-796-5403 or email Ed at Edward@croweandassociates.com

Guggenheim Product Brochure

Guggenheim interest rates

Security Benefit is offering a special product that offers unlimited gains without risk to principal.  All fixed indexed annuities offer the ability to grow assets without risk to principal but they all have limits on upside potential.  Some cap the growth potential on an annual basis while others only pass a percentage of the growth to the client.  The Security Benefit Total Value Plan changes all of this.

The total Value offers income riders and death benefit riders and even throws in an 8% bonus. A number of products offer the same benefits however.  What makes the Total Value unique is that the accumulation account uses the TVI index and provides 100% of the gain on a 5 year point to point strategy.  In other words, you put money in on day 1 you get 100% of any gain in the index 100% vested at the end of year 5.

The TVI index is constructed of 24 highly liquid futures contracts across physical commodities , global currencies, Energy, Grains, Precious Metals, Industry Metals, Softs (Cocoa, Coffee, Cotton, Sugar) and live stock.  Principal on this contract is 100% guaranteed which allows the contract holder to be more aggressive with the TVI account without worrying about losing a nest egg.  For more info on the TVI  click here

Historic results show the worst 10 year average annual return has been 5.08% per year (This does not include the 8% bonus) while the best 10 year average return has been 8.99% (This does not include the 8% bonus)

The product has been available for about 4 weeks and has taken on an unprecedented amount of assets already.  The downside is that Security Benefit has a limit of assets it wants to take on and will close this product to new money once the hit the threshold.

TVI explained doc

TVI performance

If you want more information, please email Edward Crowe at Edward@Croweandassociates.com or call 203-796-5403

With the 10 year treasury at 1.5%, CD rates are at 30 year low yields.  The current 5 year CD rate in Connecticut is now around 1% which is actually a bit lower than the 3 year CD rates being offered. Bankrate.com is the best place to find all local CD rates available. Click her to go to BANKRATE 

With rates this low, it is wise to look at alternatives and here I will talk about  2 of them which are Fixed annuities and Market linked CD’s.

Market linked CD’s: (Also called brokerage CD’s) are easy to understand.  They are CD’s which provide a return based on the performance of a bucket of stocks.  If the stocks are even or show some gain for the year, you get a stated return such as 6% (Where offers are currently). If the bucket of stocks is down for the year, 0% is credited to the account.  The account can never have a negative return for the year and with current CD rates at 1% yields, the market linked CD is likely to outperform the traditional CD by a substantial margin.

Fixed annuities: Fixed annuities work just like a CD.  The money goes into the account for a stated amount of time such as 5 years.  During that time the account is credited with a fixed interest rate.  At the end of the term, the client is able to walk away with the money without any type of penalty.  The big difference now is how much more a fixed annuity is paying vs. a CD.  There are multiple fixed annuities offering 2% on a 3 year fixed contract and 3% on a 5 year contract.  There are 10 year contracts available at 4% for those looking for a long term rate but 10 years is probably not a good thought given the current rate conditions.

There is more money being moved into fixed annuities  than at any other time in history which is no surprise given the rate advantage.  Still, people put money into CD’s at .5% to 1% with their local banks.  The most logical reason they continue to accept such low rates is due to a lack of understanding about fixed annuities and how they work.

Guggenheim has come out with a new fixed annuity with rates guaranteed for the entire term.  Terms range from 3 to 10 years depending on your preference.   Details of the plan are below including a link for a product brochure.

Guggenheim Life – “Preserve Multi-Year Guaranteed Annuity”
Year Founded: 1985
Total Assets: $5.9 billion
Interest: This annuity pays a fixed and “guaranteed” interest rate that varies, depending on the term you choose and the amount you deposit.
Deposit Amounts $250,000 PLUS

Click For Guggenheim Fixed Annuity Rates
Term: Your choice of 3-10 years (walk away, no annuitization required).
Sales Charge: None
Minimum Deposit: $10,000 non-qualified / $5,000 qualified

Maximum Deposit: $1,000,000

Issue Ages: 0-90
Rate Lock Protection: 45 Days
Penalty Free Withdrawals: 10% of the previous anniversary account value in year two and later. Also waives withdrawal penalties upon death or annuitization. Includes Nursing Home Care and Terminal Illness Riders.

Preserve MYGA Guggenheim

Email Edward Crowe for additional information or applications:  Edward@croweandassociates.com

The ability to sustain a steady income during retirement years has always been a primary concern for people in the United States. Recent studies have shown that 61% of U.S residents age 44 to 75 are more afraid of running out of savings/income than they are of death. In order to avoid exhausting a savings nest egg, guidelines have been developed. The most popular is the 4% income rule.

The 4% rule was developed in the early 1990’s by a certified financial planner named William Bengen. He set 4% as the amount of money a retiree can take out of their investments every year with a high probability that it will last for at least 30years. Since that time, financial advisors have been using it as the benchmark with clients.

A recent study from The Journal of Financial Planning has suggested that 4% is no longer a safe number. The study determined that 1.8 % is more appropriate to ensure income does not run out during retirement. The revised rate was based on many market factors. One marker was the historically high price to earnings ratio in the market which may lead to low future investor returns. The risk of poor market timing was also a factor. Taking income at the start of a bear market can have a drastic negative effect on account values and the ability to take future income.

Using a 1.8% model instead of a 4% model may be safe but it has obvious drawbacks. Consider that a person with a $500,000 investment account can only safely pull $9,000 a year from it versus the 4% model which allowed them to take $20,000 a year. If the 1.8% rule is going to be followed, there is an obvious need to increase the investment nest egg prior to retirement which may not be feasible for many people.

An alternative to this approach would be to use a guaranteed insurance contract (GIC) to create the needed income. The advantage of guaranteed contract is the ability to draw a much higher percentage of income on a guaranteed basis. The most competitive GIC’s will currently pay 5.5% to 6.0% income for life on a single life and 5% on a joint life basis. Most contracts do not require forfeiture of the lump sum invested. Some GIC contracts also offer a guaranteed roll up rate during the accumulation period. It is not uncommon for companies to offer a 7% or 8% compound accrual rate for up to 30 years. The guaranteed roll up allows for more precise planning of future asset needs.

While using a GIC can offer many advantages, caution most also be taken. There are hundreds of companies currently offering various bells and whistles on GIC contracts in order to gain market share. Some offer benefits or rates that look appealing but really have little benefit to the consumer. Others will promote incredibly high roll up on accumulation but will then lower the guaranteed income payout. The most important features should be compared prior to choosing a contract in order to obtain the best guarantees available.

It is important for most retirees to create additional income streams in addition to social security in retirement. Many will rely on minimum distributions from qualified accounts (IRA’s, 401K rollovers, SEP plans, etc) and non qualified retirement plans to create additional income.

Retired couples will often only have one person receiving additional income. This strategy works well as long as the primary person drawing income is alive but an unplanned death can leave the surviving spouse short on income.

If the deceased spouse had substantial amounts of life insurance or other investments, the surviving spouse can use the proceeds to create their own income stream. Unfortunately, the odds are that the deceased spouse would not have an adequate amount of life insurance to allow for a new income stream to be created.
Using a joint income option is a great way to protect both members of the couple in the event the other passes away.

There are now a number of companies that provide very strong payout options. Most will offer guaranteed income numbers that will increase in the deferral phase prior to turning income on. The payment will not expire until the death of both members.

A number of companies offer joint payouts and the highest paying company changes often. The current leader in this type of contract is Security Benefit. They currently offer the highest single and joint payout in the field.

We will use a 61 year old male and his 61 year old wife as an example. Assume they have saved up $200,000 to supplement retirement. If they defer the money for 5 years, Security Benefit will pay them a Joint lifetime income of $16.186.00 a year guaranteed. This represents over an 8% joint payout percentage. If the defer for 7 years, the income would go up to $20,000 a year putting the payout at 10%.All payouts are projected on a guaranteed basis making it easy to plan for future income needs.

There is no doubt that a new company will counter with a higher payout at some point but for now, Security Benefit is the clear leader.