NewRetirement Retirement News Digest : Annuities

RETIREMENT AND RISK: Variable values

jberman — Sat, 21 Nov 2009 10:35:00 GMT

American Chronicle, November 19th, 2009

In the third part of a four-part series surveying the retirement market, Annie Shaw reports on investing in a low-interest-rate environment and the attraction of drawdown and variable annuity guaranteed income products

Pension savers coming up to retirement must have wondered what hit them over the past 18 months. Stockmarket falls wiped out a quarter to a third of assets held in equities, some cash turned out not really to be "cash" while any holding that really was in cash saw returns fall as interest rates went through the floor.

The risks associated with delaying taking an annuity could not have been demonstrated more clearly, not least for those in drawdown.

Yet, far from putting investors off drawdown, some advisers think that now could be the ideal time to opt for it.

Informed Choice managing director Martin Bamford says: "Now that pension fund values have recovered many of their equity-related losses and annuity rates look reasonably good, unsecured pension will look less attractive for many people.

"However, the attraction of unsecured pension is not simply limited to income levels. Many investors choose this option for the enhanced death benefits or the ability to access tax-free cash without taking a taxable income. As a long-term strategy for investors with other assets or sources of income in retirement and for those with larger pension funds, unsecured pension will remain a viable alternative to annuity purchase."

Drawdown has grown steadily since the option became available in the 1990s. Take-up rates took a knock after the internet bubble burst in 2002, and clients and advisers started to wake up once more to the downside risks but by 2006, drawdown had taken off again, reaching 21 per cent of the retirement income market.

In the same year, the FSA launched a consumer campaign to warn investors against the dangers of drawdown, particularly for those with small pension pots.

Read more of this article.

About Reverse Mortgages: Learn all about reverse mortgages at NewRetirement.com

Professional Financial Advisors: Find out what a financial advisor can do for you at NewRetirement.com.

NewRetirement Retirement Calculator: Assess your retirement plan with the NewRetirement Retirement Calculator

Stocks: Five Market Mistakes to Avoid

jberman — Tue, 10 Nov 2009 10:21:00 GMT

Business Week, November 8th, 2009

Markets may have rebounded in 2009, but individual investors are still edgy and shell-shocked.

Even as the broad Standard & Poor's 500-stock index remained up 56% since March, the U.S. unemployment rate crept above 10%, according to a Labor Dept. report released Nov. 6. "I don't think many people are feeling very relieved," says Milo Benningfield of Benningfield Financial Advisors in San Francisco. Many people believe the "[stock market rally] can't last," he says.

These remain risky times, and the last few years have demonstrated to investors the high cost of doing the wrong thing. Against that nervous backdrop, BusinessWeek asked financial advisers what common mistakes investors are making, and how to avoid them:

1. Don't Jump In All at Once
A little optimism can be a dangerous thing. Individual investors are notorious for selling stocks when markets have already dropped and buying after they have risen. And, says Susan Elser of Elser Financial Planning in Indianapolis, "Selling low and buying high is the worst thing you can do for your returns."

Among those who stayed away from stocks and other risky investments for the past year, many are irked to have missed out on the recent rally. But is now the right time to buy again?

Don't rush back into the market because you worry you've missed the rally. "The biggest mistake is [to try] to make everything up at once," says Micah Porter, president of the Minerva Planning Group in Atlanta.

Read more of this article.

About Reverse Mortgages: Learn all about reverse mortgages at NewRetirement.com

Professional Financial Advisors: Find out what a financial advisor can do for you at NewRetirement.com.

NewRetirement Retirement Calculator: Assess your retirement plan with the NewRetirement Retirement Calculator

Unsolved Mystery

jberman — Fri, 30 Oct 2009 07:38:00 GMT

Retirement Income Journal, October 29th, 2009

The “mystery shopper” is one of the oldest and most effective research tools. You can learn a lot simply by having someone pose as a naïve consumer and catch a seller off-guard.

Journalists use this trick. Industrial spies use it. The Drug Enforcement Agency, obviously, uses it. So do market researchers.

A couple of years ago, the Washington researcher and consultant Mathew Greenwald deployed mystery shoppers to help annuity manufacturers and marketers learn why more Americans don't buy life annuities to finance their old age.

In a two-part experiment, Greenwald first asked a bunch of academic economists whether the typical Boomer retiree should buy an annuity. “We know that annuitization is rarely used, and all kinds of reasons have been given for that, but I wanted get some insights into the desirability of an annuity,” Greenwald told RIJ recently.

In other words, if no one at all vouches for annuities, further research would be pointless. “Game over,” as it were. But all of the academics recommended annuities.

“I interviewed 11 economists and others who are not involved in selling annuities,” Greenwald continued. “They all had different opinions about the circumstances that call for annuities. Some thought you should buy one at retirement. Some thought you should wait until age 70 when the payouts are higher, or that you should buy longevity insurance that starts when you're 85.”

But, small differences aside, the academics unanimously supported annuities.

In the second part of the experiment, Greenwald recruited eight mystery shoppers and assigned each of them to approach an investment advisor and ask for help in creating a financial plan for retirement. “They went to advisers and said, I'm close to retirement, and I'd like your advice on how I should manage money in retirement.”

The mystery shoppers were all real near-retirees with assets of roughly $600,000 to $3 million. The advisors were registered reps at large broker-dealers such as Wachovia, Morgan Stanley or Raymond James. The meetings between clients and advisors were not a sham. The shoppers presented real account statements and, in some cases, financial plans were drawn up and fees were paid.

Read more of this article.

About Reverse Mortgages: Learn all about reverse mortgages at NewRetirement.com

Professional Financial Advisors: Find out what a financial advisor can do for you at NewRetirement.com.

NewRetirement Retirement Calculator: Assess your retirement plan with the NewRetirement Retirement Calculator

Inflation: Good for Annuities?

jberman — Sat, 17 Oct 2009 04:44:00 GMT

Main Street, October 15th, 2009

Supporters of annuity plans, who often bill them as "personal pensions," are touting their recession era durability and pushing for federal tax breaks they say will advance their adoption.

The economic downturn seems to have had no ill effect on the immediate annuity market, which saw sales increase 30% in 2008, even as financial markets crashed.

"It is the only segment of the annuity market that grew last year and that will continue," says Craig Hemke, president and founder of BuyAPension.com, a site where users compare and buy plans.

Concerns about rising prices and the diminished buying power of the dollar are helping to shape new annuity products, including offerings with payments that adjust for inflation, rather than the traditional Cost of Living Index.

"An adjustment that somewhat approximates inflation could be valuable for someone who is worried about it," Hemke says. "At the end of the day, the number one choice of immediate annuities is still 'life only' or 'fixed.' People just want as much income as they can."

Other products go beyond "life only" plans to ensure a benefit for beneficiaries.

Read more of this article.

About Reverse Mortgages: Learn all about reverse mortgages at NewRetirement.com

Professional Financial Advisors: Find out what a financial advisor can do for you at NewRetirement.com.

NewRetirement Retirement Calculator: Assess your retirement plan with the NewRetirement Retirement Calculator

Five ways to make your nest egg last a lifetime

jberman — Tue, 22 Sep 2009 07:15:00 GMT

Marketwatch, September 17th, 2009

Back in the good old days, before the crisis of 2008-09, many experts suggested that all you needed to do was withdraw 4% per year, adjusted for inflation, from your nest egg. That strategy, experts said, was a near guarantee that your nest egg would last a lifetime.

Well, go tell that to the guy selling apples and pencils on the street corner.

Yes, conventional wisdom has proven to be more conventional than wise. And now everyone is trying to figure out the best way to turn a nest egg into an income stream that will last throughout retirement. And that includes AARP, which this week released two tip sheets that "challenge conventional thinking and offer general guidance about how to make the best decision for you and your circumstances."

One of the tip sheets, "Making Your Nest Egg Last a Lifetime," which was written by Anthony Webb of the Center for Retirement Research at Boston College, suggests the following:

1. Delay claiming Social Security

Retirees and would-be retirees need to consider matching their fixed and, best-case, inflation-adjusted sources of income against their fixed expenses. And one way to create the best inflation-adjusted source of income at the moment is to delay taking Social Security for as long as possible, certainly at least until your full retirement age if not longer, said Janet McCubbin, director of financial security at AARP's Public Policy Institute.

At the moment, many people claim Social Security -- even though it means a reduced benefit -- at age 62, using the faulty logic that they may not live past the so-called break-even point. The break-even point is the date at which the sum of your reduced early benefits no longer exceeds what you would have drawn with the heftier, delayed benefits. (There are plenty of Wed-based calculators to help you figure your break-even age.)

Read more of this article.

About Reverse Mortgages: Learn all about reverse mortgages at NewRetirement.com

Professional Financial Advisors: Find out what a financial advisor can do for you at NewRetirement.com.

NewRetirement Retirement Calculator: Assess your retirement plan with the NewRetirement Retirement Calculator.

How To Beat Insurers At The Annuity Game

jberman — Fri, 28 Aug 2009 08:03:00 GMT

Forbes, August 26th, 2009

Many variable annuity skeptics are taking a second look at these complex insurance-investment hybrids that hold your money in a mutual fund look-alike, have a life insurance death benefit and offer income-for-life guarantees. The income guarantee is appealing to people whose retirement accounts have been reduced by the stock market and whose net worth has been reduced by the real estate collapse.

Annuity marketers are tapping into this trend with television ads hinting at a worry-free retirement solution: Give us your $100,000 and we'll give you $5,000 a year for as long as you live! There are solid arguments for people in certain situations to consider annuities now, but for many investors the instant income-for-life option is not the compelling benefit insurers would have us believe.

A way to get the most from a variable annuity investment is to do exactly the opposite of what insurance companies want, which is for people to buy an annuity and start taking the income right away. While it may be the right choice for some investors, it's almost always the right choice for the insurance company because once you start taking the income, you lose certain guarantees on the growth of your principal and thus the growth of your income. When people choose this option, the insurance company has very little downside and the annuity owner loses most of the upside.

Instead, the longer an annuity holder waits to start taking the income, the greater the chance the advantage will shift. Many VA contracts guarantee that as long as you don't trigger the income option, your income basis will double in 10 years, a 7% annualized compound rate of return. Over time, the balance of power shifts: The insurance company ends up with the downside and the annuity holder has the upside, with the added guarantee that the contract value available for income will never decline.

This explains why some of the major insurers that bet heavily on variable annuity sales during the past few years are now suffering wicked hangovers. The principal players got into a kind of guarantee arms race that never figured on a historic market crash. When that crash came, annuity holders who had waited to take their income realized that even though the market was in the pits, the insurance company had guaranteed to pay them on the basis of the last high-water mark.

Read more of this article.

Professional Financial Advisors: Find out what a financial advisor can do for you at NewRetirement.com.

Annuity Advice for Retirement: Evaluate and compare annuities at NewRetirement.com

NewRetirement Retirement Calculator: Assess your retirement plan with the NewRetirement Retirement

Things to Consider when Buying Annuities

jberman — Mon, 03 Aug 2009 07:54:00 GMT

Times Herald-Record, August 2nd, 2009

In my May 31st article, I wrote about the changes by insurance companies that are occurring with annuities today.

An annuity remains a popular vehicle to save for retirement and also has the ability to provide you a guaranteed lifetime income. The next question is, "How do you shop around for an annuity?"

First, you must decide what type of an annuity is best for you today. If you want immediate lifetime income to begin today, you will want to buy an immediate annuity, one that will begin to pay an income to you in 30 or 60 days after you deposit a lump sum. If you don't want to start income today, and instead want to save for your retirement, you will want a deferred annuity.

Decide what suits you best

There are three types of deferred annuity contracts that you can start: fixed rate annuity (with a guaranteed minimum interest rate), variable annuity (the annuity's value will fluctuate with the stock and/or bond markets) and an equity-indexed annuity (the carrier credits you with a return based on changes in an index, like the Standard & Poor's 500 composite stock price index.).

Next, after you have decided what type of annuity is best for you, from whom (i.e. where) can you buy an annuity?

Many banks and credit unions offer annuities (these annuities are not insured by the Federal Deposit Insurance Corp.

Insurance agents and brokers are another point of purchase. You can also buy them from your investment adviser who sells the annuities by one or more carriers.

If you participate in a 401(k) or 403(b) plan (depending on your occupation), your retirement plan might also have an annuity plan for you to consider. Some carriers may also require a minimum deposit (like $5,000 or more) to open up a deferred annuity.

Read more of this article.

Professional Financial Advisors: Find out what a financial advisor can do for you at NewRetirement.com.

Annuity Advice for Retirement: Evaluate and compare annuities at NewRetirement.com

NewRetirement Retirement Calculator: Assess your retirement plan with the NewRetirement Retirement

Guarantee a comfortable retirement

jberman — Wed, 29 Jul 2009 04:47:00 GMT

CNN Money, July 28th, 2009

Question: I expect to have about $50,000 in pension and Social Security benefits when I retire. Do I need to buy an annuity or should I just keep investing in stock and growth and income funds? --Michael, Columbus, Georgia

Answer: I hate to start an answer with what is probably the most overused phrase in financial journalism, but...it depends.

It depends on how large you think your expenses will be in retirement, how much money you want for unexpected expenses and emergencies and how much you want to leave to heirs.

A good start is to ask yourself how much of your expected retirement expenses you want to cover from guaranteed sources of income like a pension, Social Security and annuities. There's no official correct percentage, but one strategy is to cover as much of your essential expenses -- housing costs, food, basic transportation -- as possible from secure sources. That way, you know that, whatever else happens, you can maintain a minimum acceptable standard of living.

So if you feel $50,000 from your pension and Social Security will cover enough of your basic expenses to give you the comfort level you need, then you probably don't need any more guaranteed income, which means no annuity.

But what if you feel that your basic expenses are running higher than $50,000? Or maybe you want a cushion for inflation. (Yes, Social Security provides cost-of-living increases, but most corporate pensions don't.)

Guaranteed income for life

You might want to devote a portion of your savings to a lifetime immediate annuity. Annuities come in many variations, some of which (make that most) can get pretty complicated. But an immediate annuity is the easiest type to understand. You hand over a chunk of money and in return you get a guaranteed monthly payment for the rest of your life (or, if you wish, as long as you or your spouse is alive).

A 65-year-old man who puts $150,000 of his savings into a lifetime immediate annuity would get about $1,025 a month, or $12,300 a year, for the rest of his life. Assuming he was starting with $50,000 like you, that would boost his guaranteed income to more than $62,000. A 65-year-old couple, on the other hand, would get about $840 a month, or just under $10,100 a year. Yes, that's less what a single person gets, although that income would be paid as long as either member of the couple is still alive.

Read more of this article.

Professional Financial Advisors: Find out what a financial advisor can do for you at NewRetirement.com.

Annuity Advice for Retirement: Evaluate and compare annuities at NewRetirement.com

NewRetirement Retirement Calculator: Assess your retirement plan with the NewRetirement Retirement

Desperate investors are locking in annuities at low rates

jberman — Tue, 21 Jul 2009 02:31:00 GMT

USA Today, July 20th, 2009

Low savings rates and a rotten stock market sent record numbers of savers to lock in current rates with fixed annuities — precisely when rates were near rock-bottom.

Fixed annuity sales jumped 74%, to $35.6 billion, the highest ever, for the three months ended March 31, the most recent data available from insurance consulting firm Limra.

Fixed annuities are a contract with an insurance company that, such as bank CDs, promise a set interest rate over a period of time. Unlike CDs, annuities aren't guaranteed by federal deposit insurance. Instead, they're covered by state guaranty funds.

The big reason fixed annuities are popular now: They can offer higher interest rates than bank CDs, says Chris Blunt, vice president in charge of retirement security at New York Life. "You've seen rates on fixed-income products come down a lot," Blunt says.

A fixed annuity from a top-rated company will guarantee yields of 3.3% to 3.5% for five years before resetting to a new rate, according to DirectAnnuities.com. A five-year bank CD yields an average 2.13%, Bankrate.com says. You don't pay taxes on annuity income until you withdraw it.

Read more of this article.

Professional Financial Advisors: Find out what a financial advisor can do for you at NewRetirement.com.

Annuity Advice for Retirement: Evaluate and compare annuities at NewRetirement.com

NewRetirement Retirement Calculator: Assess your retirement plan with the NewRetirement Retirement

The trouble with annuities

jberman — Thu, 02 Jul 2009 04:33:00 GMT

CNN, June 30th, 2009

With the uncertainty of the market these days, a lot of investors are running for cover with their retirement funds. No wonder sales of fixed annuities surged 74% for the first three months of 2009, according to research association LIMRA.

These insurance products provide tax-deferred growth at a fixed rate - higher than that of CDs now - with the option to later turn the money into guaranteed income for life. It's a compelling pitch. But there's a costly catch. Getting into a fixed annuity today may force you to miss better opportunities tomorrow.

Know what's being sold

First, a clarification - because the world of annuities is anything but clear. The term "fixed annuity" typically refers to a deferred annuity. That's different from an immediate annuity, for which you turn over a lump sum to an insurer and start getting regular payments within a year. Deferred annuities are more like CDs; in fact, insurers often promote them as a higher-yielding alternative.

Aimed at retirees and pre-retirees, deferred annuities may promise a high teaser rate - based on prevailing interest rates - in year one, then readjust yearly based on market conditions, with a guaranteed minimum. Or they may offer a more modest fixed rate for longer. For example: In May, Mutual of Omaha offered 4.65% the first year for contracts of $100,000 or more, with 3.65% in years two through five. (That's compared with an average of 2.19% on a five-year CD at the time.)

While there's no term on either type of contract, you're hemmed in for five to seven years by surrender fees, often around 7% initially. (Some do allow yearly fee-free withdrawals of up to 10% of the account value, however.)

Read more of this article.

About Reverse Mortgages: Learn all about reverse mortgages at NewRetirement.com

Professional Financial Advisors: Find out what a financial advisor can do for you at NewRetirement.com.

Annuity Advice for Retirement: Evaluate and compare annuities at NewRetirement.com

NewRetirement Retirement Calculator: Assess your retirement plan with the NewRetirement Retirement.

California Updates Reverse Mortgage Elder Protection Act

jberman — Sat, 20 Jun 2009 03:07:00 GMT

Reverse Mortgage Daily, June 19th, 2009

California’s Senate Committee on Banking, Finance, and Insurance passed a new version of AB 329 by a 9-2 vote on Tuesday and is being referred to the Committee on Judiciary according to the Senate’s website.

AB 329 includes provisions which prohibit any person who participates in the origination process from requiring an applicant to purchase an annuity as a condition of obtaining a reverse mortgage. It also prohibits referring the borrower to anyone for the purchase of an annuity or other financial or insurance products prior to closing the reverse mortgage or before the borrower’s rescission period is complete.

AB 329 also revises the notice that must be provided by a reverse mortgage lender to a prospective borrower before the lender takes a loan application by adding the following language, and would require that the notice be given to the prospective borrower before that borrower receives counseling:

SENIOR CITIZEN ADVOCACY GROUPS ADVISE AGAINST USING THE PROCEEDS OF A REVERSE MORTGAGE TO PURCHASE AN ANNUITY OR RELATED FINANCIAL PRODUCTS. IF YOU ARE CONSIDERING USING YOUR PROCEEDS FOR THIS PURPOSE, YOU SHOULD DISCUSS THE FINANCIAL IMPLICATIONS OF DOING SO WITH YOUR COUNSELOR AND FAMILY MEMBERS;

The bill also requires that lenders give borrowers a list of 10 counseling agencies and goes beyond federal law by requiring the provision of a specified checklist to prospective borrowers, for their use when discussing the potential ramifications of a reverse mortgage with a HUD-certified housing counselor.

Read more of this article.

About Reverse Mortgages: Learn all about reverse mortgages at NewRetirement.com

Professional Financial Advisors: Find out what a financial advisor can do for you at NewRetirement.com.

NewRetirement Retirement Calculator: Assess your retirement plan with the NewRetirement Retirement

Variable Annuity Assets Decline on Slump in Equities

jberman — Sat, 30 May 2009 09:33:00 GMT

Bloomberg, May 29th, 2009

Assets in U.S. variable annuities declined 5.4 percent in the three months ended March 31 as stock markets plunged and savers scaled back purchases.

Total assets were $1.07 trillion at the end of the first quarter compared with $1.13 trillion on Dec. 31, said NAVA Inc., a trade group for companies that sell the retirement products, in an e-mailed statement today.

Funds backing variable annuities are generally invested in stocks, and when markets decline the losses can be shouldered by both savers and the insurers that sell the products. Sales fell by 27 percent in the first quarter compared with a year earlier, NAVA said, mirroring data earlier this week from LIMRA, another industry group.

The Standard & Poor’s 500 Index dropped 38 percent last year, its worst performance in at least half a century as the U.S. fell into recession. The index is up 1.8 percent this year after a decline of 12 percent in the first quarter.

The variable annuities slump has depleted capital at life insurers across the industry, prompting carriers to scale back their offerings. That’s created opportunity for MetLife Inc., which is boosting sales even as the contracts weigh on results.

Read more of this article.

Are Annuities At Risk Now? Some Answers

tsaleen — Fri, 31 Oct 2008 00:43:00 GMT

The Wall Street Journal - October 29, 2008

Many owners of variable annuities have endured a double whammy lately: Their investment-account balances have taken a hit, as have the financial-strength ratings on the insurers that issued their annuities.

Agents and brokers say they've received a flood of calls from clients in recent weeks concerned about the safety of their variable annuities, in part fueled by the stock-market turmoil and the government rescue of insurer American International Group Inc.

Regulators and consumer advocates say life-insurance companies rarely have failed and seldom do so suddenly, so there is no need for alarm. And in the rare instance a company becomes insolvent, states ensure that guaranty funds protect both cash values and death benefits up to certain limits.

And taking rash action is a potentially costly move: Cashing out of a variable annuity early can invoke surrender charges, generally as high as 10% for as long as 10 years. Those who cash out before age 59½ also face tax liabilities and penalties.

In all, there were 35.1 million individual annuity contracts in force at the end of 2007, with a total value exceeding $2.02 trillion, according to LIMRA International, a nonprofit industry group that compiles life-insurance data, and Morningstar Inc. Here are answers to some common questions investors may have about annuities:

Q: How do annuities work?

A: Annuities are tax-deferred insurance contracts bought once, or with a series of payments, that offer the owners either a lump sum or a series of payouts after an accumulation period. Unlike other retirement vehicles such as an individual retirement account or a 401(k), annuities have no legal limits on tax-deferred contributions.

Q: What's the difference between fixed and variable annuities?

A: Fixed annuities earn a guaranteed interest rate during a certain period. They are backed by assets in an insurance company's general account, usually bonds. Fixed annuities depend entirely on the financial soundness of insurers, which are regulated primarily by state insurance departments.

Variable annuities can also come with guaranteed benefits, such as a death benefit and a minimum return, riders for which the buyers generally pay extra. In other ways, though, they're quite different: A portion of deposits go to the insurance company to cover administrative costs and guaranteed benefits; the rest is invested in a portfolio of mutual fund-like investments. These accounts are separate from the rest of the insurance contract and belong to the annuity owner, so they're not as vulnerable to the insurer's fate.

Variable annuities, however, are more exposed to market risks. If annuity owners' investments perform well, there's the potential upside of a bigger payout. But if they do poorly, as many have recently, income falls, too. Investors can shift their fund holdings, however, to lower-volatility choices such as bond funds.

Q: How have annuities been affected by recent market conditions?

A: Many variable annuities have gone through the same gut-churning volatility as mutual funds in general. Partly as a result, while sales fixed annuities rose 39% in the first six months of 2008 from a year earlier, sales of variable annuities overall declined 6% in the same period, according to LIMRA International.

Q: Should I be worried if the share price of my insurer declines?

A: Not necessarily. In some cases, analysts say, publicly traded insurance companies' stock prices have plunged partly because of their efforts to raise capital. And while raising capital can dilute existing shares, it also improves an insurer's ability to pay claims. Hence, a decline in the stock value of a company doesn't always spell immediate trouble for annuities or life-insurance policies.

Q: Should I worry if the financial-strength rating of my insurer declines?

A: Possibly. Financial-strength ratings, supplied by rating agencies, are an evaluation of the ability of a company to make good on its guarantees. A slip from an excellent financial-strength rating from one of the five agencies -- Fitch Inc., A.M. Best Co., Moody's Investors Service, Standard & Poor's or TheStreet.com -- to a slightly lower rating that is still in the secure range isn't cause for alarm, experts say. But multiple downgrades are a good reason to keep an eye on the company.

Through Sept. 30, 6.5% of the life/annuity and health-insurance companies followed by rating agency A.M. Best had been downgraded, though most remained in the "secure" range, meaning they are still regarded as financially sound.

Of course, buyers of new annuities should only buy from top-rated companies, consumer advocates say. You can find information on financial strength of companies licensed in your state by linking to your state's insurance department, at www.naic.org, the Web site of the National Association of Insurance Commissioners.

Q: What happens when a company founders?

A: State regulators usually monitor struggling companies and work with them to try to get additional capital -- or to sell the company to a stronger insurer that can make good on all of its claims. State receivers, who include the state insurance commissioner of the company's home state, often help find other insurers to take over the annuities from the troubled company. Annuity owners then make payments to the new company and collect payouts from it. Otherwise the terms of the annuity usually remain the same.

Q: What happens if no insurer wants to take over the annuity contracts of a failed insurer?

A: If an insurer is declared insolvent by a court and is liquidated, state laws require companies to pay annuity (and insurance policy) owners first and in full before paying claims of other creditors. State guaranty associations -- funded by other insurers -- then make good on the annuities and policies. Death benefits, for instance, are often protected up to $300,000. Cash values are often protected to a maximum of $100,000. (See www.nolhga.com, the National Organization of Life and Health Insurance Guaranty Associations, for state-by-state terms.)

With variable annuities, as with fixed contracts, the associations protect the death benefits, guaranteed minimums, and other contract guarantees. But investment account losses because of market declines generally aren't covered.

Q: What are my options if my insurer is at risk of insolvency?

A: Regulators and consumer groups warn that annuity owners, especially those who bought contracts recently, often stand to lose more when rashly surrendering an annuity than they would risk from the insurance company's failure. That's because the guaranty funds protect their money up to legal limits, while surrender charges and other penalties can take a chunk of an annuity's balance.

Check with your state insurance department for updates about the financial strength of insurers. If your annuity contract is still in the surrender period, often five to seven years, and the contract is below state guaranty limits, you may decide to wait and see if the company can muddle through. But if your surrender period is over or nearly finished, and a company has deteriorated enough to make you uncomfortable, you could consider a Section 1035 tax-free exchange, named for a section of the Internal Revenue Code, into another annuity contract from a higher-rated insurer. Don't forget, however, that starting a new contract will involve a new surrender period and charges, new commissions and new fees.

Don't allow a sales rep from a competing company to scare you, however, into replacing an annuity. There are state laws against "poaching" customers by making false claims about the financial condition of another insurer.

See the full article...

About Reverse Mortgages: Learn all about reverse mortgages at NewRetirement.com

Professional Financial Advisors: Find out what a financial advisor can do for you at NewRetirement.com.

Annuity Advice for Retirement: Evaluate and compare annuities at NewRetirement.com

NewRetirement Retirement Calculator: Assess your retirement plan with the NewRetirement Retirement Calculator

AARP Financial Inc. Survey Finds:

tsaleen — Sun, 05 Oct 2008 17:16:00 GMT

The Wall Street Journal Market Watch - October 3, 2008

When It Comes to Saving for Retirement, Average Americans Are Resigned to Muddling Through...Alone

To Middle-Class, Middle-Aged Americans, Golden Age Looking a Little Tarnished:

-- 59% give themselves a grade of C or worse when it comes to financially preparing for retirement

-- Most believe the odds are 50% or less that they will be able to retire when they want

-- 72% agree that when it comes to retirement, no one is looking out for the average person; 67% not sure where to go for help

...And Current Economy Isn't Helping Retirement Savings Efforts:

-- Nearly one in five said they stopped or reduced putting money into a 401(k), IRA or other retirement account due to the current economic slowdown

-- 20% said they pushed back or postponed their planned retirement date

Healthcare Costs Are a Large Pill to Swallow

-- Just under two-thirds have never estimated future healthcare costs

-- Many Americans - 45% - believe life will be discovered on other planets before they'll see affordable healthcare for retirees

Retirement Reality Check: Want to Retire One Day? Get Planning.

-- 43% of Americans spent more time planning their most recent vacation than they have spent planning for retirement

-- 28% spent more time watching reality TV in the last month than they have spent planning and preparing for retirement over the last 10 years

AARP Financial Issues List of Small Steps that Can Yield Big Results

Average Americans feel they just can't get ahead when it comes to saving for retirement and don't know quite where to turn for help, according to the results of a nationwide survey released today by AARP Financial Inc.

Over half (59%) of the average working Americans surveyed give themselves a grade of C or worse when it comes to financially preparing for retirement, and most believe the odds are 50% or less that they will be able to retire when they want to retire.

The survey evidenced a strong sense among average Americans that when it comes to retirement, they're on their own. Sixty-seven percent say they know they are responsible for planning their retirement but are not sure where to go for help. Seventy-two percent agree that no one is looking out for the average person

Less than half (45%) of those surveyed are currently working with a professional financial advisor. Among those not working with a professional, 49% believe financial advisors are not interested in them because they don't have enough money.

"Average Americans are at an impasse," said Richard "Mac" Hisey, president of AARP Financial. "They know they're responsible for their retirement, know they need help, but they don't know where to turn."

See the full article...

Professional Financial Advisors: Find out what a financial advisor can do for you at NewRetirement.com.

Annuity Advice for Retirement: Evaluate and compare annuities at NewRetirement.com

About Reverse Mortgages: Learn all about reverse mortgages at NewRetirement.com

NewRetirement Retirement Calculator: Assess your retirement plan with the NewRetirement Retirement Calculator

Retirement saving is no gamble

tsaleen — Tue, 16 Sep 2008 15:58:00 GMT

CNN Money - September 15, 2008

Question: I’m a 50-year-old woman who has yet to set up any retirement fund. I have $5,000 that I can invest now to get started, and I may be able to invest another $1,000 to $2,000 every quarter. But I wonder whether this is just a high-risk gamble considering that I have such a short time until retirement. Besides, I’m not even sure where to put the money if I do start saving - in a 401(k), a Roth IRA, a CD or some other option? - A. Gonzalez

Answer: Saving for retirement a high-risk gamble? Hardly. The real risky bet for you would be to continue putting off saving for retirement until a even later date or, worse yet, forgo saving entirely. In fact, that wouldn’t be much of a gamble. Barring a huge inheritance or hitting the lottery, you would be virtually guaranteeing yourself a meager retirement at best.

But if you start saving now - and keep it up over the next 15 years or so - you still have a shot at accumulating a decent nest egg. I’m not saying you’ll be as well off as you would had you started saving 20 years ago. It’s not likely you’ll be able to squeeze a career’s worth of saving into 15 years. But if you really bear down in this home stretch to retirement, you still have a good shot at dramatically improving your retirement prospects. And you will definitely be better off than if you procrastinate further or save nothing at all.

So let’s outline exactly what you must do. Basically, you’ve got to deal with three questions: how to save, where to save and how to invest your savings? Let’s take them one by one.

How to save

It’s relatively simple to get a ballpark estimate of how much you must put away each year to have a shot at a comfortable retirement. Just go to our What You Need to Save calculator, plug in your age, income and the amount you’ve saved to date (which I gather for you is zilch), and you’ll get an immediate estimate of the dollar amount and percentage of salary you should save each year between now and age 65 to achieve a decent retirement.

Don’t be surprised if the savings target you get is daunting. That’s what happens when you put off saving until the end of your career. You’ve got to really sock it away to make up for all the years of saving and compounded returns you missed out on.

But at this point, the important thing isn’t to focus on what you didn’t do, but what you must do. So just try to get as close to the recommended savings level as you can so you can at least start making some progress. And, in fact, if you follow through with your plan and put away the $5,000 you mentioned and then another $2,000 a quarter as you say you may be able to do, by age 65, you would have roughly $340,000, assuming an 8% return. That’s a pretty good-sized nest egg starting from scratch at age 50.

Where to save

Let’s start with that $5,000 you mentioned. To get the biggest savings bang for those bucks, you want to put it into a vehicle that has some tax advantages. Basically, you have two choices: a traditional deductible IRA or a Roth IRA. With a deductible IRA, you get a tax deduction for your contribution and the investment gains on that contribution grow free of taxes, although you are eventually taxed when you withdraw the money. With a Roth IRA, you get not upfront tax break, but you can eventually withdraw your contributions and earnings free of taxes in retirement.

As I explained in a feature I wrote on Roth accounts in Money Magazine’s October issue, you’re generally better off in a deductible IRA if you think you’ll be in a lower tax bracket after you retire, while a Roth is the better deal if you think you’ll face the same or higher tax rate. People who are diligent savers and build up sizable balances in retirement accounts tend to be better candidates for a Roth IRA. Given your lack of savings to date, I expect you’re more likely to move into a lower tax bracket in retirement, which would make the deductible IRA a better choice. But you can check out this calculator to compare the two.

This assumes that you qualify for either or both types of IRAs, which I expect will be the case, although you can find out here. If you don’t qualify for either, you can put this five grand into a nondeductible IRA - which anyone under age 70 1/2 with earned income can open - and then later convert it to a Roth IRA.

As for the $1,000 to $2,000 you think you can save on an ongoing basis, your best bet for that money is to get it into a 401(k), which I assume is a possibility for you since you specifically referred to a 401(k) as an option in your question. There are lots of advantages to 401(k)s. But for someone like you who obviously has some trouble saving, the main selling point is convenience. Your savings go directly from your paycheck into your 401(k) account before you have a chance to get your hands on the money and spend it. That’s a huge, huge plus when you’re trying to build a nest egg in a hurry.

The other possible advantage is an employer match. If your employer offers one - and most do, typically 50 cents on the dollar up to the first 6% of salary you contribute - contributing to the 401(k) leverages your savings effort and makes it more likely you’ll be able to meet your annual savings target, or at least get closer to it. So at the very least, you want to be sure to put enough in your 401(k) to take full advantage of any employer match.

Where to invest your savings

You need the long-term growth potential of stock funds so that you have a chance to boost the value of your savings over the next 15 years. But you also need some bonds so your nest egg isn’t totally devastated by market setbacks. There’s no single “correct” mix of stocks and bonds for someone in your position. But if you invest roughly 70% to 75% of your savings in stocks and the rest in bonds, that should give you the long-term growth you need while affording a bit of downside protection.

One caveat: Some people who are getting a late start on retirement planning are tempted to invest much more aggressively because they figure higher investment returns can compensate for their lack of savings and boost the value of their nest egg. Remember, though, that higher returns come with higher risk - and there’s no guarantee the higher risk will pay off. You could end up with lower returns and a smaller nest egg. So I’d be wary of dialing up your stock exposure much beyond the range I’ve indicated. (As I’d be wary of scaling back stock exposure, unless you’re willing to really ramp up the amount you save.)