Hi. My name is Ryan Hinchey. I am a variable annuity consultant. Annuities are complicated. I help people make sense of them.
Check out my new site: www.NoBullAnnuities.com
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Catching Elephant is a theme by Andy Taylor
Some 401(k) Plans Are Adding an Annuity Option
In light of the Dept of Labor & Treasury talks with annuity industry, the linked article explains some of the approaches insurance providers are offering annuities inside 401(k)’s.
Most Investors Clueless on Annuity Guarantees
According to this study by Allianz, only 27% of those surveyed know about variable annuity innovations made in the last 10 years. Rather, they base their view on research that was done 10 - 20 years ago. Scary!
There is much education that needs to be done to help the american public make informed decisions on meeting their retirement needs.
David Babbel & His “Controversial” Annuity Study
The Wall Street Journal recently published an article entitled: “Beware of ‘Independent’ Investing Research”. In the article it discusses a study on annuities that was performed by University of Pennsylvania’s Wharton School, led by David Babbel. The controversial title of the WSJ articles stems from the fact that the study was co-sponsored by New York Life.
For anyone looking to read the study it can be found here:
Investing Your Lump Sum at Retirement, David F. Babbel and Craig B. Merrill, August 2007 (11 pages)
which was based off of:
Rational Decumulation, David F. Babbel and Craig B. Merrill, May 2007 (36 pages).
Both were co-sponsored by the Wharton Financial Institutions Center and New York Life Insurance company.
I would like to think that professors at our most prestigious universities have higher ethics than those on Wall Street, but I can understand those who believe their is a conflict of interest. However at the end of the day, I think this nets a positive for society to have our top academic minds studying the retirement issues that many baby boomers face. But please, read the study for yourself. Read the assumptions and reach your own conclusion on the validity of his findings.
As income taxes go up and personal exemptions are phased out, the ability to defer income taxes becomes more valuable. And with annuities, you don’t have to tax investment gains until you start taking payments.
Allocation to Deferred Variable Annuities with GMWB for Life
The value proposition of a Guaranteed Lifetime Withdrawal Benefit (GLWB) is dynamic in nature; it depends upon the interaction of the preferences, behaviors, and demographics of the policyholder. As such, there is no one size fits all answer to questions like “How much of my portfolio should I allocate to a variable annuity with a GLWB?”
In this study, Ibbotson analyzes how the different factors affect the recommended outcome for the above question. Here are some of their high level findings (spoiler alert):
- low risk tolerance = higher GLWB allocation
- higher age (above 65) = lower GLWB allocation
- above average health / life expectancy = higher GLWB allocation
- higher wealth & low need for guaranteed income after factoring in DB plans & social security = lower GLWB allocation
- bequest motive (desire to leave an inheritance to heirs) has no material impact.
While the findings may seem intuitive, more interesting is the degree to which recommendations can vary, depending on the policyholder.
Dr Moshe Milevsky Talks Annuities
While there are countless articles on annuities that are filled with bias and mis-information (regardless of opinion), Professor Milevsky is one source that knows what he is talking about and tells it like it is.
In this short interview the Professor mentions the findings of a survey of retired Americans: those who own annuities are more comfortable and happy in retirement than those with a higher overall wealth level due to the stability annuities provide.
