We would love to hear from you. Click on the ‘Contact Us’ link to the right and choose your favorite way to reach-out!

wscdsdc

media/speaking contact

Jamie Johnson

business contact

Victoria Peterson

Contact Us

855.ask.wink

Close [x]
pattern

Industry News

Categories

  • Industry Articles (17,774)
  • Industry Conferences (3)
  • Industry Job Openings (3)
  • Moore on the Market (207)
  • Negative Media (139)
  • Positive Media (73)
  • Sheryl's Articles (656)
  • Wink's Articles (265)
  • Wink's Inside Story (238)
  • Wink's Press Releases (99)
  • Blog Archives

  • November 2021
  • October 2021
  • September 2021
  • August 2021
  • July 2021
  • June 2021
  • May 2021
  • April 2021
  • March 2021
  • February 2021
  • January 2021
  • December 2020
  • November 2020
  • October 2020
  • September 2020
  • August 2020
  • July 2020
  • June 2020
  • May 2020
  • April 2020
  • March 2020
  • February 2020
  • January 2020
  • December 2019
  • November 2019
  • October 2019
  • September 2019
  • August 2019
  • July 2019
  • June 2019
  • May 2019
  • April 2019
  • March 2019
  • February 2019
  • January 2019
  • December 2018
  • November 2018
  • October 2018
  • September 2018
  • August 2018
  • July 2018
  • June 2018
  • May 2018
  • April 2018
  • March 2018
  • February 2018
  • January 2018
  • December 2017
  • November 2017
  • October 2017
  • September 2017
  • August 2017
  • July 2017
  • June 2017
  • May 2017
  • April 2017
  • March 2017
  • February 2017
  • January 2017
  • December 2016
  • November 2016
  • October 2016
  • September 2016
  • August 2016
  • July 2016
  • June 2016
  • May 2016
  • April 2016
  • March 2016
  • February 2016
  • January 2016
  • December 2015
  • November 2015
  • October 2015
  • September 2015
  • August 2015
  • July 2015
  • June 2015
  • May 2015
  • April 2015
  • March 2015
  • February 2015
  • January 2015
  • December 2014
  • November 2014
  • October 2014
  • September 2014
  • August 2014
  • July 2014
  • June 2014
  • May 2014
  • April 2014
  • March 2014
  • February 2014
  • January 2014
  • December 2013
  • November 2013
  • October 2013
  • September 2013
  • August 2013
  • July 2013
  • June 2013
  • May 2013
  • April 2013
  • March 2013
  • February 2013
  • January 2013
  • December 2012
  • November 2012
  • October 2012
  • September 2012
  • August 2012
  • July 2012
  • June 2012
  • May 2012
  • April 2012
  • March 2012
  • February 2012
  • January 2012
  • December 2011
  • November 2011
  • October 2011
  • September 2011
  • August 2011
  • July 2011
  • June 2011
  • May 2011
  • April 2011
  • March 2011
  • February 2011
  • January 2011
  • December 2010
  • November 2010
  • October 2010
  • September 2010
  • August 2010
  • July 2010
  • June 2010
  • May 2010
  • April 2010
  • March 2010
  • February 2010
  • January 2010
  • December 2009
  • November 2009
  • October 2009
  • August 2009
  • June 2009
  • May 2009
  • April 2009
  • March 2009
  • November 2008
  • May 2008
  • February 2008
  • August 2006
  • Making the Case to Buy an Annuity

    March 9, 2011 by Lavonne Keykendall

    Retirees may get more financial security by combining insurance products and mutual funds, some analysts say.

    By LAVONNE KUYKENDALL

    Many investors approaching retirement think they have no need for annuities. But the lifetime-income guarantees offered by these insurance-company products can add security to portfolios that are mostly composed of stock and bond mutual funds.

    A market downturn that hits right before or early in retirement can leave even conservative investors with far less money to draw from than planned and little time to recoup the losses, increasing the risk they could run out. By putting a portion of their retirement funds in annuities, some investment researchers say, investors can arrange for a more dependable income stream for life.

    “The longer we live, the greater stress that puts on our ability to pay for our retirement-income goal—an inflation-adjusted income stream that lasts as long as we do,” says Tom Idzorek, chief investment officer at Morningstar Inc.’s Ibbotson Associates unit. “We need to go beyond the universe of mutual funds and exchange-traded funds and consider longevity-risk products.”

    According to Financial Research Corp., a Boston research firm, a 65-year-old retiree who withdraws an inflation-adjusted $45,000 annually from a $1 million portfolio of stock and bond investments has a 25% chance of running out of money before age 92. But if the retiree gets the same annual income by investing $400,000 in an immediate annuity and withdrawing the rest from $600,000 invested in stocks and bonds, the chance of running out of money drops to 6%, the research firm says.

    To be sure, Ibbotson and a number of other companies and academics that have cited the benefits of annuities do consulting work or otherwise earn income from insurers that sell annuities. But they make a persuasive case, particularly in light of the two bear markets of the past decade.

    An Annuity Fan

    One believer is Bud Hebeler, 77, a retired Boeing executive who runs www.analyzenow.com, a retirement-planning website. He says annuities have made his retirement more secure, helping him avoid the problems that plague many retirees who rely primarily on their savings.

    What will be the biggest challenge if you live to 100?

    “People didn’t think they would live that long, and they spent too much too early,” Mr. Hebeler says. Low interest rates over the past few years have hurt, too. “Now, they are trying to ration a limited amount of savings.”

    According to actuarial mortality tables, a healthy 65-year-old man has a 33% chance and a healthy woman a 44% chance of living beyond 90. For a 65-year-old couple, there’s more than a 50% chance that at least one of them will live beyond 90.

    Mr. Hebeler has invested in “immediate” annuities in stages over three years—a strategy known as “laddering”—to take advantage of potentially rising interest rates. With an immediate annuity, investors hand a lump sum to an insurer and get a promise of regular payments that will last for as long as they live; when interest rates are low, as they are today, investors lock in payments that are smaller than they might get in other environments.

    People in poor health or those with a family history of early death usually are advised to steer clear of annuities. But Mr. Hebeler says he hopes to live into his 90s like his parents did, which would make the annuities a great deal for him and allow him to leave more money to his children. He also says the protection provided by the annuities has enabled him to invest the rest of his portfolio more aggressively, with a larger percentage in stocks than he might have had otherwise.

    Two Types of Annuities

    Retirees may do best by augmenting their mutual-fund portfolios with both immediate annuities and a second variety—variable annuities that have lifetime-income benefits—according to both Ibbotson and Moshe Milevsky, a finance professor at York University in Toronto who has written extensively about the benefits of annuities.

    With a variable annuity, investors typically invest in mutual-fund-like subaccounts—but have the option of buying income benefits that can reduce the risk that a market downturn during retirement will devastate investment values.

    For an added fee, typically 0.5% to 1% a year, a rider promises the contract owner a set percentage of the original investment, typically around 5%, annually for life.

    If the investments do well, the contract value and annual payout may step up to reflect the higher balance. Money not withdrawn in the holder’s lifetime can be left to heirs.

    On the negative side, variable annuities have long had a reputation as being too expensive and pushed by salespeople for large commissions.

    In a paper written for insurer MetLife Inc. Mr. Milevsky explains that immediate annuities and variable annuities with guaranteed living benefits provide different advantages to a portfolio. He gives immediate annuities top marks for protecting investors against the risk of outliving their money, particularly if the investors live longer than expected. Variable annuities with lifetime-income benefits, meanwhile, help protect investments from “sequence of returns risk,” or the hazard of a big downturn just before or after retirement.

    Ibbotson has developed proprietary guidelines to make personalized recommendations on annuity purchases based on an investor’s answers to typical retirement-planning questions. It has licensed the program to some insurers and investment managers, including TIAA-CREF, New York Life and Great-West Retirement Services, a unit of Great-West Life & Annuity Insurance Co.

    In general, the guidelines recommend that older investors allocate more of their money to immediate fixed annuities to take advantage of the higher payout that is keyed to age at the time payments begin. A typical 65-year-old should put around 20% of his money in a fixed annuity and about 30% in a variable annuity, according to the guidelines. A 75-year-old should put around 35% in a fixed annuity and a little less than 30% in a variable annuity with a minimum withdrawal benefit for life, Ibbotson says.

    Conservative investors should consider investing a little more in each than investors who are comfortable with market risk.

    Invest Aggressively

    Wealthy investors who face no risk of outliving their money probably don’t need annuities at all, many advisers say. But retirees whose pensions and Social Security income fall well short of their needs may want to put a higher percentage of savings into a longevity product. For investors who want to maintain greater control of their assets, a variable annuity with a minimum withdrawal benefit for life should be favored over immediate annuities, some advisers say.

    Ibbotson’s Mr. Idzorek recommends that investors take advantage of the downside protection in a variable annuity by investing their subaccount funds as aggressively as their contract allows. The fee for the guaranteed-minimum-withdrawal feature is typically the same no matter how the funds are invested.

    Most investors buy variable annuities right around retirement. But it may be a good idea to start buying these products five to 10 years before retirement and spread the deposits over several years, rather than try to time the market with one big buy, according to Great-West Retirement Services.

    Variable annuities are beginning to make an appearance in some 401(k) plans, and Great-West says it has gotten a lot of interest in its 401(k) annuity offering, launched last year.

    Ms. Kuykendall is a former reporter for Dow Jones Newswires. She can be reached at reports@wsj.com.

    Originally Posted at The Wall Street Journal on March 8, 2011 by Lavonne Keykendall.

    Categories: Positive Media
    currency