Posts

ACLI promises better disclosures about annuities

The American Council of Life Insurers (ACLI) is promising to improve disclosure about annuities in cooperation with the National Association for Variable Annuities (NAVA), according to “User-Friendly Annuity Documents Planned,” an article on the Financial Advisor website.

Maybe they could start with the so-called “easy to read tip sheet” for seniors on their website. It sports plenty of jargon. Like “current credited interest rate”–a term that I couldn’t even find in the ACLI’s glossary. The same goes for “subaccount.”

The ACLI and NAVA are tackling a tough job. I wish them good luck.

A CFA favors longevity annuities

Longevity annuities may make sense in the eyes of at least one CFA charterholder.

“…individuals can have their cake and eat it too. They can buy longevity insurance for about 5–10 percent of their assets while investing and decumulating the remaining 90–95 percent!” according to a Canadian charterholder’s letter in the July-August issue of CFA Magazine (subscription required).

I’ve written previously about annuities. It fascinates me that they’re becoming more respectable.

Annuities keep gaining respectability as a retirement solution

Your 401(k) plan would be annuitized for two years upon retirement, if the authors of “Increasing Annuitization of 401(k) Plans with Automatic Trial Income” have their way.

“Workers could opt-out at retirement or after those 24 months. But the authors expect that few would,” said the Tax Policy Center’s Howard Gleckman in “A New Annuity for 401(k)s.” He concluded “the new scheme is a big improvement over what we have now” because it would provide a steady income stream similar to that from defined benefit plans.

Of course, noted Gleckman, post-retirement annuitization doesn’t fix the problem that “all of the pre-retirement risk would be on workers, rather than their employers.”

I’ve noted in “Annuities gathering steam in professional journals that annuities seem to be gaining respectability as a retirement solution. 

Annuities gathering steam in professional journals

Annuities may be picking up steam among fee-only financial planners and investment advisors.

According to a press release from the Financial Planning Association:

Despite their tarnished reputation due to sleazy sales tactics, high expenses and weaker investment performance compared with mutual funds, popular variable annuities (VA) with “living benefit” riders may still be a sound choice for some retirees, concludes an article in the May 2008 issue of the Journal of Financial Planning, published monthly by the Financial Planning Association® (FPA®).

In his article, “A Context for Considering Variable Annuities with Living Benefit Riders,” John H. Robinson examines how the investment performance of a particular type of VA rider stacks up against an index mutual fund as each tries to weather two bear markets.

I’ve written earlier–in “CFA Institute: Consider annuities, even variable annuities” and “Financial Analysts Journal article favoring annuities about increasingly favorable coverage of annuities in the CFA Institute’s Financial Analysts Journal and other venues. More recently, annuities received favorable mention in the inaugural issue of the CFA Institute’s private wealth management e-newsletter.

The Journal of Financial Planning addressed this trend in “Variable Annuities: Emerging from the Dark Side?” by Nancy Opiela in March 2007.

But the barriers to acceptance by advisors remain, as “It’ll be tough to sell advisors on longevity annuities” suggested.