They're everywhere: financial industry articles heralding the latest, hottest investment or product -- and annuities are no exception. With a market recovery that now seems sustainable, investors have begun turning their attention back to variable annuities, many of which now boast a range of new and attractive features. But in order to best serve a current or prospective client's needs, it's important to ignore the buzz and remind them of the many features that could make annuities especially effective for their retirement planning needs.
Living benefits for variable annuities
Two types of living benefit riders continue to gain attention in the marketplace: guaranteed withdrawal benefits for life (GWBL) and guaranteed minimum income benefits (GMIB).
GWBL riders allow customers to make annual withdrawals at a percentage rate that's set based on the person's age at the first withdrawal. In an uncertain market environment, GWBLs can be attractive because they ensure a minimum percentage withdrawal for as long as the client is alive.
Some companies also offer an option to extend that minimum level of income for as long as their spouse lives, as well. While it is true that consumers are getting back their own money, because the withdrawals reduce the annuity's account value, a variable annuity can guarantee a set amount of income, as a minimum, for life.
While more companies are now offering this guarantee, some are building in restrictions, such as waiting periods or mandated asset allocation models. Still other carriers offer deferral bonuses for the years in which the clients don't withdraw their monies. This feature can be attractive to those who are close to retirement or have flexible or multiple income sources.
As their name suggests, GMIB riders guarantee a minimum stream of income, regardless of the performance of the variable annuity's underlying sub-accounts. As with guaranteed minimum death benefits, many companies offering the guaranteed minimum income stream benefit no longer permit dollar-for-dollar withdrawals. Some will allow these withdrawals, but only up to the roll-up percentage each year, with proportional reductions thereafter.
While these benefits are interesting, savvy annuity marketers should place their clients' needs first. Whether it is immediate or deferred, variable or fixed, there was a reason you originally recommended a particular annuity for your client, and that reason was likely based on an overall risk and needs assessment.
Regardless of today's hot products and trends, keep in mind that your client's annuity may still be doing what it was originally intended to do -- helping them meet their overall financial goals. It's important to periodically follow up with your clients to make sure their needs haven't changed. If they have, you may want to make some changes to their product portfolio. After all, sound advice is built on a long-term needs assessment, not industry trends.
There is no magic formula that tells you when one feature should be used over another. But for the vast majority of consumers, a "do-it-yourself" approach to retirement planning can spell disaster. You may often recommend sticking with what you know best and are most comfortable recommending to your clients. Sometimes, you will be called upon to make a judgment call as to which feature to suggest based on your knowledge of the client's situation.
Ultimately, either one can be effective as one of the ways to help ensure an effective retirement plan.
Providing protection for guaranteed income is key
The one thing both the GMIBs and GWBLs have in common is the fact that they can each guarantee a minimum amount of lifetime income. Another im-portant similarity is that each can allow a consumer to invest in underlying investment sub-accounts with some degree of confidence, knowing the guarantees will be there even if their money runs out.
The crystal ball is cloudy
Change is the one certainty in financial markets. History has shown that markets, as well as the products and investments associated with them, can weather severe ups and downs. Investing with a short-term strategy is quite different from investing for tomorrow. On a long-term basis, there is no such thing as a truly "hot" product. Only time can tell what feature will make the most sense.
Regardless of which you recommend, however, consumers should be assured that their stream of income will last at least as long as they do in retirement.
Robert M. Goldenberg, CLU is vice president of annuity marketing and product development at AXA Equitable Life Insurance Company, the principal life insurance subsidiary of AXA Financial Inc. He can be reached at 212-314-5165 or robert.goldenberg@axa-equitable.com.
