If your retirement planning includes buying an annuity and your current or former employer can purchase it on your behalf, the deal is almost certainly going to be much better than the one you can get on your own.
According to a lengthy report recently released by the Society of Actuaries' Committee on Post Retirement Needs and Risks, institutional pricing is not only lower initially, but the income that buyers get from their investments is significantly greater when employers do the purchasing.
The report, which was aimed at employers who are considering offering retirement income products as a company benefit, pointed out that lower pricing available to institutional buyers can raise the amount of annuity income by 10 percent to 20 percent for the same amount of savings invested. The report used pricing for a guaranteed minimum withdrawal benefit annuity, known as a GMWB, as an example. It figured the average annual cost for a GMWB purchased by an individual through an insurance company to be approximately 3.5 percent annually. But it said typical institutional pricing is 1.5 percent to 2 percent.
While a 65-year-old couple purchasing a GMWB on its own is likely to get a "benefits value" -- a guaranteed contract value of assets -- of 4 percent, GMWBs sold as institutional products routinely offer a 4 percent to 5 percent benefits value. That results, according to the actuaries, in initial retirement income that's 12.5 percent higher. The actuaries figure that this gap increases to as much as 19 percent after 20 years.
Beyond that, during years when returns are lousy, the actuaries point out that over-the-counter products figure insurance guarantee fees against the guaranteed benefits value, while contracts for institutional products levy these fees against market values, which are lower.
In other words, individual buyers get a lousier deal all around.
If your employer is one of the increasing number offering to annuitize some or all of your 401(k) either during the savings period or upon retirement, take a hard look. This could be a terrific deal.