Variable annuities on cusp of change |
| By Jay MacDonald
• Bankrate.com |
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Hi, I'm Dennis Hopper.
Remember me from "Easy Rider" and
"Blue Velvet"? I'd like to rap with
you a minute about variable annuities. ...
No, you're not having a '60s flashback.
It's merely the first wave of the really far-out trip formerly known as retirement.
Hopper's over-the-top TV commercials
for Ameriprise, in which cinema's bad boy rants
from a desert floor (note the subtle imagery),
are the latest attempt by the financial services
establishment to pitch its products to rebels
without a pause -- the baby boomers.
| Variable annuities have gotten bad press, sometimes
deservedly so, but don't write these insurance products off altogether. |
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| Not your grandmother's annuity |
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Target
market: cash-rich boomers
Small wonder. The financial research firm Tiburon
Strategic Advisors says the cash generated
as 76 million baby boomers sell their businesses,
downsize their homes and liquidate their 401(k)s
is expected to nearly double consumer investable
income from $17 trillion to $30 trillion by
2010.
What
right-thinking insurance provider wouldn't want a larger slice of that pie?
As baby boomers make the transition
from workaday accumulation to budgeting for
the back nine (don't mention the R-word, man),
financial institutions are giving their variable
annuity products a makeover in hopes of attracting
a greater market share, especially those major
bucks expected to roll over from qualified
retirement plans into IRAs.
Rest assured, these aren't your
grandmother's annuities. Instead, they are packed
with a growing menu of options known collectively
as living
benefits that, in theory, will allow aging
boomers to have their cake (a lifetime stream
of income) and eat it too (greater and prolonged
participation in equity markets without risk
to principal).
"I think the living
benefits have really been driving annuity sales," says Mark Mackey, president
and chief executive officer of NAVA, the Association
of Insured Retirement Solutions. "Someone who is 62 or 64, if they're
in good health, they may need to make their money last 25 or 30 years, so they
really need to continue exposure to the equity market in order to do that. With
the principal protection of the living benefit, it allows people to have their
equity exposure but it protects them from a downturn for which they might not
have enough time otherwise to recover."
What's
a variable annuity?
Quick refresher: A variable annuity is a financial
product with an insurance wrapper that offers
three things mutual funds typically do not
-- tax-deferred treatment of earnings, a death
benefit and an annuity stream that can provide
guaranteed income for life. Like their cousin
the fixed annuity, they can be purchased to
begin paying out immediately (an immediate
annuity) or at a future date (deferred
annuity). Unlike a fixed annuity, variable annuities offer
exposure to potentially greater earnings through
their underlying portfolio of stock, bond
and money market investments. |
