Root for the USA!

USA! USA! USA!  In two months, we’ll get the red, white and blue out of the closet and start cheering for our American heroes participating in the 2012 London Olympics. At the same time, the life insurance/annuity world could be chanting “USA” for a completely different reason. For the industry, “USA” stands for the “united states of annuities.” This is a tongue-in-cheek reference, of course, but the annuity business is cheering because the U.S. Department of the Treasury may tacitly endorse annuities for income and rollover purposes. OK, I don’t predict a true endorsement by the government, but this development certainly wouldn’t suck for the annuity business.

Here’s a recap: The U.S. Treasury and Labor departments want to encourage Americans to use annuities for retirement planning, which could give annuities a stamp of approval when guaranteed income for life is desired. And the Treasury may propose that partial annuity options be permitted for retirees in employment-based pension plans.

Upon further review, I think the new “endorsement” will apply only to immediate income annuities, not the accumulation variety. The industry seems to think that since annuity products can be converted to income,  the new guidelines would include any product with the word “annuity” associated with it. But I think it’s the case of hearing only what you want to hear.

Nevertheless, the wonderful world of annuity agents and companies think this could be a huge opportunity for them. Imagine allowing annuity guarantees to be offered to tens of millions of Americans. We, the agents, are going to be rich! Insurance companies will become financial behemoths again! Not so fast, Porky.

When negotiating concessions with the government, it’s always a give-and-take game. They give you rights or access to something valuable, and you tweak a few things for the sake of being fair. Here’s what I could see happening: The Treasury may suggest Americans use annuity products when guaranteed income is required. In return, Treasury may require insurers to provide absolute fee disclosure to the consumer at the time of purchase. The insurance industry has fought fee transparency for decades, and this will become a great battle between annuity providers. Will the industry as a whole agree to this compromise? Universally, I say no. Too many crappy insurers make a good living by hiding fees and commissions in their consumer-unfriendly product line. (See American Equity Life, Topeka, KS.)

In my opinion, the government should have touted annuities years ago. How many nest eggs or income streams were destroyed because consumers were in the wrong investment at the wrong time? At the very least, investors should take a portion of their funds to create an income stream that covers their fixed costs. And, most importantly, investors should know that guaranteed income for your lifetime can be accomplished only by purchasing an annuity.

The new guidelines, as proposed, would be a win-win for the industry and the consumer. More consumers would want guaranteed income and, we hope, annuity products would become easier to understand. When is the insurance/annuity industry going to realize that the better the products, the more sales you make? If you make your products more mainstream, all Americans would be interested, not just the ones who are approached by an insurance agent. Go, USA go!

Pay-it Forward:

Keep distractions for your recent college graduate to a minimum. We, as parents, have a responsibility to the younger generation to warn them about wasting too much time on meaningless activities, including Facebook. Social networking has value, particularly with job hunting, but it shouldn’t be abused. The age of distraction is here, and it can be considered a curse. Monitor your daughter’s time to see if she can be more productive. Heck, some kids could’ve worked a part-time job with all their wasted online efforts!


Earl E Bird

I'm Earl E. Bird and I am very concerned about saving for my senior years. I am amazed at the stumbling blocks that exist when saving for retirement. That's why I take my time when making decisions on building my nest egg.

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