Annuity Implosion - earlebird.com

An annuity wholesaler I worked with since 1988 was finally let go from mother AIG last week. This guy survived low rates in the 1990s, the 911 fallout and the 2008 world financial crisis, which, by the way, could be blamed on AIG’s backing of trillions of dollars of credit-default swaps. Unfortunately, my buddy just couldn’t overcome what’s happening in today’s historically low-rate environment. Annuity sales are slow because fewer Americans are seeing the need to lock in the current 1.5% yields, which makes it difficult for annuity employees to hold on to their jobs.

Last week’s other big news was the selling of my ol’ friend Presidential Life. Presidential is another casualty of lower interest rates. Management finally threw up its hands and said “uncle” to the fixed annuity industry. Management, not short on age, just had enough of the pressure. Each year the company made smaller and smaller spreads on their products, which created serious doubts about the company’s future success. Can you blame them? Waiting for another business cycle when you’re 67 years old can put you in an early grave. Yes, it was a sad to hear the news; I also knew the time had come. And I prepared for this takeover day for a long time by purchasing Presidential Life stock on dips for the last 18 years. So it’s fair to say I wasn’t completely melancholy making a 40% profit on the prior day’s price.

The annuity industry is shrinking–and fast. This means less competition and fewer competitive products. Smaller insurers, who at times would bring great products and rates to a humdrum annuity market, are disappearing at an alarming speed. Smaller insurers will be sorely missed. I miss Presidential already!

Here are some commonly asked questions:

What is your feeling about long-term care riders on fixed annuity products? I think if you need long-term support, then buy that policy. The rider is too costly for the annuity and doesn’t work right now with low yields.

Since my state has a $100K guaranty corporation, does it really matter how strong the insurer is as long as my value stays below $100K? State guaranty corporations are not federal guarantees! Period. You could wait years to get your money out. The corporation is backed by insurers doing business in the state and not the state itself. The corporation kind of works but don’t hang your hat on it!

Can I buy an annuity directly from an insurance company, bypassing dealing with an agent? The answer is kind of, but you really must deal with an agent. There are fantastic agents out there who add so much value to financial planning. But make sure you get referrals from friends and interview the referrals before making a purchase.

Don’t death proceeds to my beneficiaries get paid without any charges? Nowadays, many popular index annuities attach rules to payouts to avoid penalties. I only want to sell products that offer 100% payments to beneficiaries at any time with no penalties. I would choose not to purchase products that levy charges to your family!

Pay-it Forward:

Make sure your post-grad understands Newton’s First Law of Motion: Objects in motion tend to stay in motion. And objects at rest tend to stay at rest. Translation: Keep your daughter active and alert during summer months and after graduation. And, whatever you do, don’t allow her to waste away on a couch wondering and worrying about the future. A busy schedule is the answer to many ills!

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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