New Types of Variable Annuities for Retirement

There is a transformation of sorts occurring in the annuity market. Some of the large sellers of annuities to baby boomers and retirees are introducing new annuity products that are simplified and/or that offer new features. Let’s look briefly at a couple of these new types of annuities.

The Hybrid Variable Annuity

Axa/Equitable has launched a new variable annuity product that can be termed a “hybrid annuity.”  The product is called “Retirement Cornerstone.”  This product includes two distinctly different accounts.  The first account appeals to an investors’ desire to maximize investment performance. This is called the “Long-Term Accumulation Account.” The second account – called the “Guaranteed Benefit Account” – is intended to protect the investor’s assets. This annuity product offers different investment choices for investors to try to recoup some of their prior losses while also using a lifetime income guarantee.

As you can expect, the hybrid annuity is complex, includes a variety of optional benefits, and carries a number of different fees that can really add up. Nevertheless, if you are inclined toward using variable annuities for growth and income in retirement, products like this should be on your list for consideration. For more information about the Retirement Cornerstone annuity,visit this site.

Simplified Variable Annuities

The trend for some insurance companies is to offer streamlined variable annuity products. This trend seems to be based on two factors. First, the insurance companies are trying to lower the cost of the annuity products by stripping out or watering down costly features, such as guaranteed income riders. Second, the variable annuity sellers want products that look more like mutual funds so that they are easier to explain and sell to consumers.

One of the first of these simplified variable annuity products is the AnnuityNote from John Hancock.  This product is intended specifically for baby boomers planning for retirement. It is sold only to investors between 55 and 75 years of age, with a minimum investment of $25,000. The terms and conditions are relatively simple for a variable annuity.

First, the product guarantees a 5% annual payout for life, after a 5-year waiting period. The amount of the lifetime income payment (paid monthly) will depend on the value of the account after 5 years but that amount is guaranteed not to be less than your initial payment.

Second, there are no surrender charges except that a partial withdrawal during the first 5 years will reduce the level of guaranteed income.

Again, there are significant fees including a 3% upfront sales charge and annual fees approaching 2%.

The simplicity with this variable annuity product resides in that fact that the lifetime income benefit is built-in and is not part of an extra-cost rider.

For more information about the AnnuityNote product, use this link.

Final Thoughts on New Types of Variable Annuities

Annuity-type products have become popular because of their different “guarantee” provisions. Investors looking at retirement are nervous. Many are willing to pay dearly for peace of mind and guaranteed income. For these folks, the newer annuity products may be helpful because they are easier to understand and use. For me, I’m not so sure but I will continue to study and learn.


Comments

  1. says

    Hi Mr. GoTo

    I have examined many annuities and found that generally they are good for one thing only, lining the pockets of those who sell them.

    AXA and Hancock are good at marketing these confusing vehicles. If you factor inflation into the mix (we all know where that’s heading)then your basically breaking even. 3% upfront and 2% annual fees, I would rather do a CD ladder, much simpler and more flexible.

    TRS

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