Do you think the Administration’s proposals will give annuity sales a shot in the arm?

In all those years of education it is such a shame there was apparently no econ or financial basics class for President Obama nor the majority of members of the House and Senate. Please tell me what product gurantees BOTH no market risk AND guaranteed inflation-protected income for life. I teach clients to never go for the "free lunch" but our commander in chief and his munchkins keep offering it like leprechauns on speed enticing the naïve with their Pots of Gold. Oh, I have no doubt a creative soul at an insurance company somewhere can create something that sounds like it offers all that, and I am sure it will have such low benefit/potential that the offering companies will sell it to the foolish and fill their own pots of gold with "deals" that would make a pay-day loan provider blush. Could we get our "leaders" to at least read Where are All The Clients’ Yacht’s?

If they really want to promote annuities, they could change the taxation on distributions from annuities. As it stands now, ALL distributions from ANY annuity (whether qualified or not) are, to the extent that they're includible in income, taxed as Ordinary Income. Last year, Congress considered a bill that would have exempted from income tax the first $20,000 of ANNUITY PAYMENTS (NOT partial withdrawals) from a non-qualified annuity, made to an annuity holder over age 70.5. It didn't become law. Perhaps it should. Or Congress might want to make distributions taxable either wholly or partly as Long Term Capital Gains. Deficit hawks won't like that idea, as it's a revenue killer. But one could argue that providing further incentives to save for retirement and taking the money saved AS INCOME (and not as a lump sum) is good social policy. Of course, one could also argue that providing a transfer tax environment that permits American taxpayers to plan, with some confidence, for the orderly passing of their wealth to the next generation is good social policy. And Congress chose NOT to do that last month (and shows no inclination to do it now). So we now have what amounts to an estate planning guessing game. In this political environment, I don't expect ANYTHING truly rational to emerge from Congress. - John Olsen

Jann asks " Please tell me what product gurantees BOTH no market risk AND guaranteed inflation-protected income for life?" No problem. ANY nonvariable annuity (immediate, deferred, or "longevity") with a life-contingent payout option with COLA will do that. MOST such contracts offer a COLA option (although very few contracts peg that COLA to an external index such as the CPI; most simply offer a fixed annual increase [e.g.:3%, 4%, etc.) in the annual annuity payment). Glad I could help. - John Olsen

John, if you believe that solves the problems you must be very young. 12% mortgages (1980s) and extended market downturns and periodic aging inflation do NOT make that a guaranteed great situation. AND for every bell and whisle in the package is a cost. I once reviewed an variable insurance product with a potential for 8+% in fees . In fixed products the fees are not disclosed, but they are there. What will you tell your annuity client (and way too many people both buying AND selling don't actually look at the numbers) when inflation runs at 6-8% and you have guranteed them income that keeps up with inflation and they are locked into a product they cannot change?

Jann wrote: John, if you believe that solves the problems you must be very young. 12% mortgages (1980s) and extended market downturns and periodic aging inflation do NOT make that a guaranteed great situation. AND for every bell and whisle in the package is a cost. I once reviewed an variable insurance product with a potential for 8+% in fees . In fixed products the fees are not disclosed, but they are there. What will you tell your annuity client (and way too many people both buying AND selling don't actually look at the numbers) when inflation runs at 6-8% and you have guranteed them income that keeps up with inflation and they are locked into a product they cannot change? Where are the fees in fixed annuities? I seem to have missed that part of my clients' contracts. So, John proved there is a product that keeps up with inflation and has no market risk. Who said that a client should have 100% in a SPIA? If one organizes their clients' assets properly, the relative inflexibility of a SPIA should not be an issue.

Jann wrote: What will you tell your annuity client (and way too many people both buying AND selling don't actually look at the numbers) when inflation runs at 6-8% and you have guranteed them income that keeps up with inflation and they are locked into a product they cannot change? Jann: I really have no dog in this fight.. But how do you handle Soc Sec or company pensions? Don't they have the same issues? My retirees received no COLA on SS but ask them if they are paying more this year than last. Bob

Another annuity critic who doesn't know the first thing about them (no doubt another RIA with limited platform solutions) !!!!!!!!!!!!! To misunderstand the most basic annuity products absolutely reveals their inability to utilize the more complex and functional variable products. There are NO FEEs in a fixed annuity....period. There are NO FEEs in an income annuity....period. I'm not even going to explain the ABCs of these most basic (and ancient) products....take a class for pete's sake! And John only wishes he were young....again, and as any reader here knows he is an expert in many things, especially risk management and retirement income solutions!! To debaser's point, no one who knows anything puts ALL of any clients money in ANY single solution. You asked about an inflation adjusted guaranteed income solution and one was given. debaser added that one can (and should) have other assets for additional future needs including additional income support, or elder care, or auto purchase, etc. which is also a very standard retirement asset management discipline known by some as "bucket" resource allocation - different product platforms for different time frame and expense needs. One trick pony RIAs do face a terrible retirement solution, the one account total return option, which does everything for everybody....except solve the situation described by the annuity critic (and most other critical retirement planning needs). There are only three retirement portfolios regardless of products, platforms, or allocations chosen. The first is the retiree takes less income than the portfolio generates (the ideal) - portfolio is growing at or greater than inflation; second is the retiree is taking all income available while preserving principal value (low volatility, mostly fixed interest and income) - now losing buying power to inflation; and third, the dreaded spend down - portfolio interest/earnings are insufficient for retirement needs. You advisors with no clients in strategies 2 or 3 face challenges to be sure, but nothing even close to the challenges of those of us who manage money for working class people whose longevity and lack of investable assets requires a spend down solution. Annuities have some powerful advantages for even strategy 1, but they are uniquely valuable in 2 and 3 !!!!! Since I don't believe in the academically acclaimed Monte Carlo as misused by most practitioners and software, I do feel a little hypocritical pointing out that income annuities and VAs with guaranteed withdrawl or future income, have a profoundly positive impact on portfolio survival simulations. How can someone who uses probabily forcasting to try and create a total return managed portfolio solution, deny or dismiss this well documented impact???? If the facts don't jive with your prejudice, you just ignore the facts????

The EXPENSES are hidden in insurance contracts. (DO you think there is no profit in an insurance contract for the insurance company? It is not the post office, for heavens sake!) But because costs are imbeded, the only means to approximate them is to compare products. Compare what you are paid to sell folks with what a no-load/low-load might provide you might begin to get a SMALL understanding of the expense of every guarantee. Even with a product you sell, compare the illustration for a given client several times with each kind of "added benefit" and see how much it changes payouts on immediate annuities or how, if your software allows, different surrender penalty periods affect different outcomes. THERE ARE COSTS. That no fee stuff is exactly how lower functioning (because of extra costs) variable annuities get sold in IRAs where the tax deferral is redundant but the salesman is paid handsomely. And don't get me started on "guarantees" that have clients unwilling to touch money they need because it will "step up" for their heirs. We can't annuitize for life income based on the step-up! I sell no products primarily because I came to a place where I felt about vendors as I do about pharmaceutical sales reps who tell only the potential benefits and gloss over the potential problems. I do recommend annuity product be considered by clients because they have A PLACE but they are NOT a fix-it-all product and for Washington types to market for any product invites the most egregious abuse of the most vulnerable and naive in our country. The training in the insurance industry has eroded horrifically as commissions and profit margins have narrowed and as usual, the most vulnerable pay the price. And banks selling annuities are more often bad for clients than good!

Oh dear...where to begin. You have now changed fees to "costs/expenses". Of course insurance companies have costs and expenses...don't funds and managed accounts??? But your conclusion still does not match reality. IA, FA, VA, life insurance, auto and home insurance, and health insurance premiums are actuarial risk transfer calculations....change the risk, change the premium!!!!! OK, I'll explain one simplicity to you here....but really, take a class!! FAs do NOT have fees (or true premiums for that matter) because there is NO risk to the issuer. The insurance company takes your deposit (premium if you prefer) and manages those assets with and as their own. They take a haircut off the general account earnings (usually in the 1-3% range) while paying the depositer/annuitant a fixed interest rate (which used to be reset anually but can now be fixed for 1-10 years by contract). The insurance company must demonstrate both a book value and reserve capacity to payoff the anuitant by death or surrender in cash!! A similar structure can be seen in bank CDs - banks don't have CD fees!! They payout to depositors less than they charge in loan interest to borrowers...it's called "the spread". Now, unlike insurers, banks also loan out the depositors' money to others providing depositors significant risks insurers and annuitants do not incur....thus FDIC. Banks make a much bigger spread than annuity companies typically. IAs and VAs DO have actuarial risk for the insurers....they are making guarantees about great uncertainties. The transfer of individual risk to managed and pooled risk is a very old business, including the annuity. The newer options in newer contracts can help clients reduce risk and improve outcomes....so long as adequate premiums are collected by the insurer of those risks to meet their actuarial obligations. IAs and VAs bring significant risk to insurers (in IAs it's living too long and in VAs it can be both dying too soon or in a down market or living too long depending on the risk the annuitant wants to insure. Indeed, VAs are most amazing exactly because they insure against two conflicting and opposite risks which financial planners seek solutions for). While it is ok to not use something one does not like or understand, it is annoying to listen to critical "noise" by someone who simply doesn't know anything about that which is being criticized. Did I suggest taking a class???