News Articles

  • Reaching Retirement Goals

    Posted on March 6, 2012 by IALC

    Indexed annuities have helped Frank and his wife Mary Lou achieve their targets for retirement. They have always been diligent about saving money, and wanted the peace of mind and safety indexed annuities provide. Because of their stable funds, Frank and Mary Lou have been able to travel, provide funding for their grandchildren’s education and donate to causes they are passionate about.

    Frank explains that if he had left a large portion of money in the stock market, he would likely have to be working part-time to support he and his wife to make up for what he would have lost. Hear more of Frank’s story below:

     
  • Fixed Index Annuities (FIA) – What, When, and Why?

    By: Tom Morrow

    Fixed Index Annuities were introduced to provide the same principal protection from market losses enjoyed by all fixed annuity owners. But, here is the kicker...FIAs also gave the annuity owner the potential for higher interest based on the market index used.

    The FIA era began in 1995 when a 60 year old from Massachusetts made a $21,000 premium in a Keyport KeyIndex annuity that grew to $51,779. Not a bad start for FIAs, and did I say something about "Principal Protection."

    The beauty of an annuity is SAFETY. You are guaranteed not to lose your principal, or any interest credited to your account. Like a Fixed Annuity, FIAs also guaranteed a minimum rate of interest. Is it any wonder why, FIAs have grown from just over $100 million the first year to (are you ready)...$210 BILLION at the end of 2010. There was something more than SAFETY going on here!

    Read more... Fixed Index Annuities (FIA) – What, When, and Why?  
  • NAFA

    National Association for Fixed Annuities

    Article By: Kim O'Brien, Executive Director, NAFA

    The investment community has historically used fixed annuities as a stable value component of an integrated investment strategy. Now, two recent innovations within the fixed annuity insurance industry are expanding the role of these products. These innovations provide new opportunities for financial advisors to diversify risk and complement the investment side of an individual's retirement plan with guarantees and insurance.

    Read more... National Association for Fixed Annuities  
  • Fixed Annuities:

    The Missing Piece of Your Retirement Planning Puzzle?

    By Doug Lockwood

    U.S. News MONEY

    Increasingly, the responsibility for funding a comfortable retirement is shifting from the employer and the government to the individual. Many people contribute to employer-sponsored retirement plans and IRAs, but there is another tax-advantaged retirement vehicle that shouldn't be overlooked: annuities.

    Read more... U.S. News & World Report Money  

National Association for Fixed Annuities

NAFA

National Association for Fixed Annuities

Article By: Kim O'Brien, Executive Director, NAFA

The investment community has historically used fixed annuities as a stable value component of an integrated investment strategy. Now, two recent innovations within the fixed annuity insurance industry are expanding the role of these products. These innovations provide new opportunities for financial advisors to diversify risk and complement the investment side of an individual's retirement plan with guarantees and insurance.

 

These new types of annuities are deferred lifetime annuities and fixed annuities with long-term care benefits.

The Challenge of Retirement Planning

To understand how these annuities are used, it is helpful to examine the core challenge facing retirees and individuals planning for retirement. To retire with confidence, most retirees need:

(a) Sufficient income to cover their expenses,

(b) Income that increases over time to bridge the gap between Social Security and any other income,

(c) Certainty that they cannot outlive their income,

(d) Emergency income for long-term care or assisted living assistance, and

(e) Discretionary income for travel, vacations, weddings, and so forth.

An investment portfolio can create a desired income and provide of the potential for value and income growth over time. However, without an insurance portfolio, the investment-only portfolio creates uncertainty and troubling variability for clients. Plus, when retirees don't prepare in advance, the cost to add solutions to provide for these contingencies increases significantly year after year.

Dealing with Longevity Risk

Consider the need to guarantee income for life. Ignoring longevity risk, a typical investment-only approach is to build a portfolio that creates a desired income and asset value through the client's life expectancy and perhaps a few years beyond that. However, there remains the possibility that a client could be the outlier, the person who lives 15 years or more beyond the typical life expectancy. How do you deal with that?

Often a solution has been to use immediate annuities and guaranteed lifetime withdrawal and income benefits on variable annuities. Unfortunately, creating a sufficient income with these products often requires committing a large chunk of the client’s assets. Thus, the longevity risk “tail” ends up wagging the investment strategy “dog.”

Annuity Innovation: Longevity Insurance

The new solution is a form of longevity insurance called a deferred payout annuity. The basic idea is that your client, who is perhaps age 65, purchases a guaranteed stream of life-contingent income starting at an age well in the future, such as age 85. The payout can be based on a single life or the lives of a married couple. Because the income is delayed until far into the future and because it is only paid if your client is then alive, it is cost efficient.

This annuity solution can be a win-win. Since less money is needed to fund the guaranteed lifetime income stream that can increase over time, more money can be available to create an optimal investment portfolio to take your clients to age 85. Your clients are free to live their early retirement years with confidence, perhaps traveling more, because they know the later years are covered.

Dealing with Long-Term Care Risk

Next, consider the issue of long-term care. Medicare typically does not cover such care beyond a short period following a hospital stay, and Medicaid will typically not pay for long-term care until after your client’s assets are depleted. The federal government estimates that half of nursing home residents are paying out of their own pockets. Thus, this is a risk that is clearly the family’s to bear, and it can be costly.

Genworth Life Insurance Company, in their 2010 Cost of Care Survey, indicated that nearly two-thirds of Americans over age 65 will need long term care at home or through adult day care, an assisted living facility, or nursing home. Median national costs range from $38,220 to $75,190 annually depending on the type of care needed, and these costs are in addition to – not a replacement for – your client’s current living expenses.

Historically, this risk solution has been long-term care insurance (LTCI), but clients tend to be cool to the idea since they often believe such care will be unnecessary or prefer a home-care solution and either wait until it is too late or too expensive. This mindset is demonstrated by the fact that LTCI sales have fallen six out of the last seven years.

Annuity Innovation: Long Term Care Benefits

The new solution is an annuity that automatically increases the benefits it pays if long-term care is needed. Congress included some helpful provisions in the Pension Protection Act of 2006 that went into effect on January 1, 2010 that provide for such benefit payments to be income-tax free.

Under these annuity designs, clients do not pay out-of-pocket for the long-term care coverage. Rather, the carrier deducts charges from the interest that is credited to the annuity. These charges are less than the amount of interest being credited to the annuity, so the annuity balance continues to grow. Moreover, these monthly charges are not included in the owner’s income, but instead simply reduce the income-tax cost basis of the annuity.

The benefits for your clients are easy to see. They can do a 1035 exchange of their existing annuities and get something more – sometimes up to triple their money if long-term care is needed. They get long-term care coverage and don’t need to invade their savings, and they can receive benefits for care received at home. But notice, it is not use it or lose it – if they never use the long-term care benefits, their annuity balance grows.

Finally, almost all deferred fixed annuities provide many surrender-free liquidity options for unexpected expenses such as trips or to purchase a special gift. So retirees can still enjoy the spontaneity and joy of visiting loved ones or the smile of giving a treasured gift.

These new annuities are not for everyone, and it is the financial professional’s job to look for all suitable solutions that meet their client’s unique needs. However, many clients may want to consider these affordable and powerful benefits. The insurance industry is innovating all the time and these new products are a great balance to an investment portfolio. To ensure suitability, NAFA encourages investment advisors to consider these insurance options to complement investment planning solutions.

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