Is AARP Really Looking Out for Its Members When It Comes to Annuities?

May 4, 2014 by AnnuityFYI Exclusive Article

When AARP was founded in 1958, the life expectancy of the average American was 69 years old. Today, Americans can expect to live a decade beyond that. With longer life expectancies, retirees are being forced to stretch their savings and retirement assets further than ever before. Many fear that they will run out of money long before they die.

So, when a major insurer like New York Life teams up with AARP to offer a fixed immediate annuity, which provides guaranteed income that a retiree cannot outlive, retirees should jump at this opportunity, right?

Well, perhaps not.

While AARP has long claimed that it has been looking out for its members (those aged 50 and above) in fact the organization has significant conflicts of interest.

A Brief History of AARP Criticism

AARP was founded in 1958 as a non-government non-profit organization and interest group for Americans aged 50 and above. It has since grown to become one of the most powerful lobbying groups in the United States. Currently, AARP has over 40 million members

Many of the special features that AARP offers (including prescription drug discounts, consumer goods, and travel and entertainment packages) are run by a for-profit entity, AARP Services, Inc. AARP Services is a wholly owned taxable subsidiary of AARP, and its profits flow directly to AARP, the non-profit. AARP Services develops new products, manages and markets products and services, and creates and maintains partnership and sponsorship relationship – all the while garnering profit from its efforts. As a result of AARP Services, the non-profit AARP has been extremely financially successful. Based on 2012 audited financial statements, AARP received $723 million in royalties from companies that sold products that were referred by AARP Services. The organization also received an additional $131 million from advertisements that were placed in its publications.

How is it that an organization can claim non-profit status while receiving the profits from a for-profit subsidiary? For decades, critics have accused AARP of being established simply as a misleading device to sell insurance. In a 1996 New York Times article, economist Paul Krugman called AARP “a business enterprise using politics as a sales gimmick.” 1 Many observed that AARP was promoted as a non-profit advocate of retirees in order to sell insurance to its members.

The U.S. Senate responded to the criticism by investigating the non-profit status of AARP based on this royalty income from the for-profit AARP Services. While the investigations did not reveal enough evidence to change the organization’s non-profit status, Senator Alan Simpson, then-chairman of the Subcommittee on Social Security, Pensions, and Family Policy, later remained “troubled by AARP’s practices” for years to come. He called AARP “the greatest abuse of American generosity [he] witnessed in his time in the United States Senate” and “the biggest marketing operation and money maker.” 2

AARPʼs Annuity Promotions with New York Life Insurance Company

Since 1995, AARP has had an agreement with New York Life Insurance Company to serve as the exclusive provider of life insurance products to AARPʼs 40 million members. Last year, AARP extended this contract through 2022. By offering market insurance and annuity products through New York Life, AARP has continued to reap the benefits of the royalty income that its marketing tactics have produced.

AARP advertises the “Lifetime Income Program,” a fixed immediate annuity that is underwritten by New York Life. While AARP regularly mails its members advertisements for this annuity, these ads are actually from New York Life, which in turn pays a marketing fee to AARP.

The rates on AARPʼs lifetime income program are never the best on the market, even for insurance companies of similar financial strength ratings. In 2005, Business Week questioned whether AARPʼs commercial interests conflicted with those of its membership. Business Week revealed that many of the funds and insurance policies AARP markets were considerably less beneficial than other policies seniors could find on their own. Business Week further confirmed that AARP makes a substantial sum of money from its partnersʼ sales. 3

The Importance of Competitive Quotes

For the past two years, Annuity FYI has routinely run competitive quotes whenever an AARP mailing for the New York Life immediate annuity is mailed out. New York Life routinely has payout rates from 0.25% to 0.75% lower than competitors of similar financial strength. This translates into significantly less monthly income for AARP members who may purchase this immediate annuity from New York Life. Many AARP members see the immediate letters sent regularly by AARP as an endorsement of the annuity by AARP, when in New York Life is simply paying to use the AARP logo and member list. Investors are advised to see the AARP / New York Life immediate annuity quotes only as one offer, while thoroughly exploring other rates from competitive insurance carriers.

Originally Posted at AnnuityFYI on 2014 by AnnuityFYI Exclusive Article.