Interest rates may indeed be at historical lows when it comes to finding pay-out guarantees, but that hasn't stopped the industry from doing full-scale and targeted product development. "There's a greater focus now on what customers need and ways they can customize products to meet their needs," Lanam adds. "I think companies are very cognizant of the fact that if there is too much clutter the message gets lost."
Jerome Golden, president of Golden Retirement Resources, recently launched a new breed of immediate annuity (called the Flexible Benefits Annuity or FBA) that is worth advisors notice. The FBA allows contract holders to customize their annuity by choosing the level of monthly survivor, legacy and supplemental caregiver benefits, if any, they desire. To sidestep some of the fear involved in purchasing an immediate annuity, which after all does not allow for cancellation, the company allows contract holders to dollar cost average into a contract over a number of years. The one-page illustration the company prepares shows what the contract will cost at different benefit levels and also what it will cost if purchased by a single contribution as opposed to multiple annual contributions over the number of years the investor desires.
"We think this is crucial because it helps advisors and their clients overcome a valid question: 'When is the right time to sell my securities and buy an annuity?'" says Golden. "Dollar cost averaging addresses the permanent nature of the immediate annuity contract and the fact that historically it's been hard for investors to commit to the lump-sum payment. We believe this changes the way the market thinks about this product."
It also gives contract holders with underwater securities time for those securities to rebound, an important consideration in this market.
Its payout rates, which are changed on a daily basis for new contracts, were very attractive on April 24 at 4.69%. In fact, for a lump-sum investment of $438,424 (or five years of investing $84,173 annually), the FBA guaranteed a single 65-year-old $3,000 in monthly pre-tax income over his or her lifetime.
For the contract holder who wants to add a 75% lifetime survivor benefit for his or her spouse in addition to the $3,000 monthly payout, the lump-sum contribution goes to $496,048 or $481,357 if one dollar-cost averages over five years. The lump-sum contribution goes to $505,845 for the contract holder who also wants to provide his children or other beneficiaries with a 50% monthly benefit ($1,500) in addition to the 75% monthly survivor or spousal benefit. The cost of the contract increases to $540,835 for those who want to guarantee an additional 50% (another monthly $1,500) caregiver payment should they need to purchase caregiver services.
"I think our product is positioned to capture a portion of the multi-trillion dollar retirement rollover and conversion market in the coming decade," says Golden, who warns advisors not to minimize the investors' desire to lock in some portion of their retirement income. "I saw a classic case of this when we launched in January. The managing partner at a big New York law firm told me he wanted to be our first customer. He said, 'Here's my logic: I want to know how much I'll be able to afford to spend in retirement.' He already had his estate plan and everyone else was taken care of but he wanted to make knowable what his monthly and annual income would be."
That's not to say the industry isn't experiencing it's share of turmoil or that advisors can afford to turn a blind eye to it. GE Life and Annuity Assurance President Pam Schultz told a National Association of Variable Annuities Conference earlier this year that it's been a tough market for two years and "looks like more of the same in 2003." Still, she says, the poor market conditions have served "to underscore the value of the basic annuity proposition, provided the industry raises the bar through innovative products, enhanced sales training and technology."
The company's most closely watched product is called The Retirement Answer, structured as an immediate variable annuity which is invested in a balanced Total Return Fund designed to replicate an institutional pension fund managed by tactical asset allocation. Essentially, it allows an advisor to sit down with a client and help the client purchase his own pension. GE Financial will guarantee a minimum income and may distribute more than that if the total return fund realizes better-than-expected returns.
The push in Congress to offer tax breaks to retirees who annuitize some portion of their retirement plan payouts is also getting favorable attention. Still offering competitive fixed products has gotten more difficult in the current rate environment. In a two-week period earlier this year. Guardian Life Insurance Company of America sold $350 million of a fixed bucket paying 3.15% in its C+C Annuity Variable Annuity before deciding to pull the fixed bucket.