Response: Retirement: Live Long and Don't Prosper
March 13, 2011 by Sheryl J. Moore
PDF for Setting It Straight with Bloomberg Businessweek
ORIGINAL ARTICLE CAN BE FOUND AT: Retirement: Live Long and Don’t Prosper
Dear Mr. Steverman,
I am an independent market research analyst who specializes in the indexed annuity and life markets. I have tracked the companies, products, marketing, and sales of these products for over a decade. I used to provide similar services for fixed and variable products, but I believe so strongly in the value proposition of indexed products that I started my own company focusing on IAs and IUL exclusively. I do not endorse any company or financial product, and millions look to us for accurate, unbiased information on the insurance market. In fact, we are the firm that regulators look to, and work with, when needing assistance with these products.
I recently had the occasion to read an article that you authored for Bloomberg Businessweek, “Retirement: Live Long and Don’t Prosper.” This article had some misleading statements in it and reflects poorly on Bloomberg Businessweek it is for this reason that I am contacting both you and the paper’s editors, to ensure that appropriate corrections can be made to this article. I am also reaching-out so that you can have a reliable source for fact-checking information in the future.
Initially, there are three questions that must be answered, when looking into what type of annuity is right for you:
1. What level of market risk am I willing to assume with the annuity?
a. If more concerned about a high minimum guarantee, regardless of the lower level of interest accumulation, consider a fixed annuity.
b. If willing to accept a lower minimum guarantee than a fixed annuity, but looking for potentially greater interest accumulation, consider an indexed annuity.
c. If willing to accept no minimum guarantee, in exchange for the possibility of unlimited interest accumulation, consider a variable annuity.
2. How soon will I be taking income?
a. If within the first year, consider an immediate annuity (offered in fixed, indexed, and variable types).
b. If it is further in the future, consider a deferred annuity (offered in fixed, indexed, and variable types).
3. How many premium payments will I be making?
a. If only a single payment, consider a single premium immediate annuity or a single premium deferred annuity.
b. If making more than one payment, consider a flexible premium deferred annuity.
Overall, an annuity is merely a contract where an individual agrees to pay premiums to an insurance company and receives in exchange, a regular stream of income payments from the issuer- either now or at some time in the future. Annuities can be purchased with as little as a $1,000 lump sum premium, or $50 per month. It is so important for Americans to realize that an annuity is THE ONLY financial services product which can guarantee an income that the purchaser cannot outlive. Deferred annuities provide the option for guaranteed lifetime income via annuitization and Guaranteed Lifetime Withdrawal Benefits (GLWBs) after the initial annuity purchase, where income annuities (sometimes referred to as ‘single premium immediate annuities,’ or SPIAs) provide immediate guaranteed lifetime income. Income annuities offer many different choices (or payout options) such a straight life, life and period certain, or joint and a percentage to the surviving spouse. Each payout option has its advantages and disadvantages.
Not all annuities have “costs” the way that deferred variable annuities do. Income annuities as well as fixed and indexed deferred annuities specifically have no explicit costs. The “cost” that the client pays on a fixed or indexed annuity is merely time; via a surrender charge. The surrender charge on a fixed, indexed, or variable annuity is a promise by the consumer not to withdraw 100% of their monies prior to the end of the surrender charge period. This allows the insurance company to make an informed decision on which conservative investments to use to make a return on the clients’ premium (i.e. 7-year grade “A” bonds for a seven-year surrender charge annuity or 10-year grade “A” bonds for a ten-year surrender charge annuity). Investing the consumer’s premium payment in appropriate investments allows the insurance company to be able to pay a competitive interest rate to the consumer on their annuity each year. In turn, it also protects the insurance company from a “run on the money” and allows them to maintain their ratings and financial strength.
Furthermore, annuities do not have to be “complex;” indexed annuities in particular are fairly simple financial instruments. If the annuity purchaser can understand that they have the ability to deposit their money with an insurance company, defer taxes on the monies until they begin taking income, receive 10% withdrawals of the account value annually without being subject to penalties, and have the ability to pass on the full account value to their beneficiaries upon death- then they can understand nearly every indexed annuity sold today.
There is a tremendous misconception in the media that annuities do not return the monies paid-into the contract, should the annuitant die too early. This is based on the inaccurate belief that all annuities are income annuities with a straight life payout. This is a false generalization. This payout is only one of numerous payout options available on income annuities today. Furthermore, this doesn’t apply to deferred annuities whatsoever. Clarification on this common misconception is due to Bloomberg Businessweek’s readers. Making a decision NOT TO purchase an annuity based on this egregiously inaccurate information could cost readers their retirement.
I truly appreciate the opportunity to bring this information to your attention, and hope for the sake of your readers that note will be taken of these misstatements and generalizations. Please let me know if I can be of assistance to you in the future, should you have any need for fact-checking or resources on annuity products.
Thank you.
Sheryl J. Moore
President and CEO
AnnuitySpecs.com
LifeSpecs.com
IndexedAnnuityNerd.com
(515) 262-2623 office
(515) 313-5799 cell
