Since payouts on both products are identical at age 85 (when the HIS product kicks in), it really makes sense to use the HIA product, which gives investors earlier access to their money. So, what will The Hartford pay a man who at age 65 invests $100,000? Depending on when the man starts payments, here's what he'll get for the rest of his life:
Starting at age 65, $681 a month;
Starting at age 75, $1,800 a month;
Starting at age 85, $7,638 a month.
It's easy to see where the rewards for long-term investing and the income guarantees for longevity planning come into play with these products. The payouts "are competitive," says Place, the president of AnnuityQuickQuote.com, who runs fixed immediate annuity quotes for advisors, brokers and investors across the country. When we ran the case ourselves on Place's Web site, some of the top quotes were right in line with The Hartford's illustration.
"If you use the income annuity as one of your primary income options in the early years of retirement, you can avoid drawing down your investment portfolio in a down market, when you won't be able to recover," Sanderson says. "We're starting to see a lot of interest among advisors and brokers who are using the annuity five to 10 years before retirement with clients age 55 or so. For the first time, they're able to say: 'OK, I can guarantee what your income will be five years from now.' "
New York Life's product is a single-premium annuity which layers in the longevity protection of a lifetime income annuity with a "changing needs" option that allows annuitants to increase or decrease their payouts dramatically at any point in retirement. We found from our market research a few years ago that people want income today, or to at least have access to their money, so we took a single-premium immediate annuity and layered longevity insurance and other options on top of it," says Mike Gallo, a New York Life senior vice president in the guaranteed lifetime income department. The company is one of the largest annuity providers in the country, experiencing overall growth rates of 65% between 2002 and 2007. Sales of single-premium immediate annuities alone last year totaled nearly $900 million, Gallo says.
The product also offers riders that give investors the option of leaving money to heirs in a variety of ways, through a "life with cash" refund of whatever premium they didn't receive in their lifetime, or with death benefits of 25% to 50% of the annuity. While payouts vary based on options, the base $100,000 New York Life annuity pays a 65-year-old male $676 a month.
John Hancock takes a different tack-using a variable annuity (the John Hancock Venture Variable Annuity) that investors can protect with a guaranteed withdrawal benefit, called Income Plus for Life (IPFL). The rider offers investors the ability to take regular withdrawals of 5% per year, even if the investment balance in the annuity declines to $0. The owner retains investment control and access to underlying assets if needed, says Tom Mullen, vice president of marketing for John Hancock Annuities in Boston.
The annuity guarantees to pay $5,000 annually to the 65 year old who invests $100,000, though since it's a variable annuity, an additional payout will depend on the investment prowess of the advisor or investor who picks underlying mutual funds. The income base can also grow automatically via a 7% annual bonus that is applied in years when no withdrawals are taken (essentially a reward for those who plan to take income later, as many of our clients do).
So the minimum guaranteed income in future years can be calculated based on the bonus credits that will be earned along the way. "Actual income may be higher if the account value increases, but it will not be lower, and it will not decline so long as the investor's withdrawals do not exceed what the benefit allows," Mullen says. More than $11 billion poured into John Hancock variable annuities last year, up considerably from 2006, Mullen says.