Response: Want Recovery? History Says Be Patient. Very Patient.
March 18, 2010 by Sheryl J. Moore
PDF for Setting It Straight with Eric Schurenberg
ORIGINAL ARTICLE CAN BE FOUND AT: Want Recovery? History Says Be Patient. Be Very Patient.
Mr. Schurenberg,
Good afternoon. I am an independent market research analyst who specializes exclusively in the indexed annuity (IA) and indexed 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 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 your article that was published at CBS MoneyWatch. Your article, “Want Recovery? History Says Be Patient. Very Patient.” contained a damaging, inaccurate statement about indexed annuities. I am specifically reaching out to you, to provide you with more information on indexed annuities as it seems you may be misinformed (just as I did to your colleague Allan Roth on his two most recent articles on indexed annuities).
You are right that your readers shouldn’t “trust anyone telling you that they’ve found a way around risk.” However, there are all kinds of risk, Mr. Schurenberg. An indexed annuity can be a useful tool in guarding against inflation risk, for example. It also provides their purchasers with protection from market risk; no indexed annuity purchaser has ever lost a penny as a result of the market decline.
However, I think you could benefit from some basic information about these products, so that you can understand better how they might fit into your readers’ retirement portfolios.
Annuity Risk Spectrum
| Guaranteed Interest | Upside Potential | Indexed Participation | Client’s Risk Tolerance | |
| Fixed (Traditional) |
Typically 2% | Very Limited: typically less than 5.50% | None | Low |
| Indexed | Typically 87% of premium @ 3% | Limited: typically capped at less than 9.00% | Gains based on performance of external index | Moderate |
| Variable | Fixed account only | Unlimited | Gains based directly on fund performance | High |
There are three questions that must be answered, when looking into what type of annuity is right for an individual:
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.
Indexed annuities are an ideal retirement income product for millions of Americans who are not willing to stomach the potential losses of the market in exchange for the potential for double-digit gains. The risk profile of an indexed annuity purchaser is someone who wants protection of principal from market exposure, but also wants the ability to outpace fixed annuity and CD rates by 1% – 2%. Indexed annuities have numerous benefits, including but not limited to:
- No indexed annuity purchaser has lost a single dollar as a result of the market’s declines. Can you say the same for variable annuities? Stocks? Bonds? Mutual funds? NO.
- All indexed annuities return the premiums paid plus interest at the end of the annuity.
- Ability to defer taxes: you are not taxed on annuity, until you start withdrawing income.
- Reduce tax burden: accumulate your retirement funds now at a [35%] tax bracket, and take income at retirement within a [15%] tax bracket.
- Accumulate retirement income: annuities allow you to accumulate additional interest, above the premium you pay in. Plus, you accumulate interest on your interest, and interest on the money you would have paid in taxes. (Frequently referred to as “triple compounding.”)
- Provide a death benefit to heirs: all fixed and indexed annuities pay the full account value to your beneficiaries upon death.
- Access money when you need it: fixed annuities allow annual penalty-free withdrawals of the account value, typically at 10% of the annuity’s value (although some indexed annuities permit as much as 20% of the value to be taken without penalty). In addition, 9 out of 10 fixed and indexed annuities permit access to the annuity’s value without penalty, in the event of triggers such as nursing home confinement, terminal illness, disability, and even unemployment.
- Get a boost on your retirement: many fixed and indexed annuities provide an up-front premium bonus, which can provide an instant boost on your annuity’s value. This can increase the annuity’s value in addition to helping with the accumulation on the contract.
- Guaranteed lifetime income: an annuity is the ONLY product that can guarantee income that one cannot outlive.
I understand that your piece is commentary, but I am certain that an organization as prestigious as the CBS MoneyWatch appreciates disseminating reliable information to their readers. In the wake of the stock market collapse, it is so very important that Americans have access to credible, reliable, and accurate information on retirement income products. These people look to you for this information! And yet, they have also lost as much as half of their retirement dollars in the market, and are now in a position to delay their retirement. They are looking for help in terms of what to do with their money. You do these individuals a great disservice by swaying them prior to understanding the basic premise of these products.
Should you have a need for reliable and accurate information on indexed annuities in the future, please do not hesitate to contact us. Thank you!
P.S. Ask us about our new TOTALLY FREE website, www.IndexedAnnuityNerd.com!
Sheryl J. Moore
President and CEO
AnnuitySpecs.com
LifeSpecs.com
IndexedAnnuityNerd.com
Advantage Group Associates, Inc.
(515) 262-2623 office
(515) 313-5799 cell
(515) 266-4689 fax
