The Road
to Retirement
In partnership with:
Looking for
income during your
golden years? A fixed
annuity may be the vehicle
to help you accomplish
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W
hat industry canclaim that its more than 50 million customers have in-vested $13 trillion in its products? The answer: the fixed-annuity in-dustry, which expects to add even more weight to those totals in the years ahead.
The bumper crop of baby-boomers entering or about to enter the age of retirement is one reason for the optimism. “Demograph-ics is a big plus-factor in our busi-ness,” says Thomas C. Godlasky, president and CEO of Aviva North America, an affiliate of the world’s fifth-largest insurance company. “People are moving away from the accumulation phase of their finan-cial assets and into the income-distribution phase. This means an emphasis on products with guar-antees and less exposure to market risk.”
The ABCs of AnnuiTies
An annuity is a financial product, usually sold by an insur-ance company. A buyer may pay a lump sum at the start or put in additional funds later down the road. The insur-ance company invests the funds, and the buyer receives periodic payments that begin either immediately or at a point in the future.
These instruments come in a wide variety of shapes and sizes, but there are two types: fixed annuities, which promise a minimum guaranteed fixed amount over a stip-ulated period; and variable annuities, whose returns fluc-tuate up and down with financial market conditions. One major advantage of annuities is that no tax is due on the earnings they generate until funds are actually paid out.
Annuities have a long history. Scholars have traced
their origin as far back as ancient Rome, and over the centuries a number of variations have de-veloped. Back in 17th-century France, individuals put their funds into “tontines” and received pay-ments for as long as they lived; whatever funds were remaining went to the last survivor.
In the U.S., annuities have been available for more than two centuries. Sales of fixed annui-ties tend to level off when stock prices boom, as buyers are more tempted by the opportunities for growth in the markets than the desire for safety. But when stocks slump, buyers return to fixed annuities (see accompanying chart). Last year, sales of fixed annuities rose 7.6%, and that in-crease has continued at a higher rate in 2008.
In 2005, the Gallup Organization profiled owners of non-qualified annuities (meaning those bought with after-tax dollars and not part of a pension, IRA, or 401(k) plan). The average age of today’s annuity buyer is 66, but the proportion of younger first-timers is rising sharply. Those buying before they hit 50 rose from 28% in 2001 to 39% four years later. Nearly nine out of ten still have the first annuity they purchased. In general, buyers have moderate incomes; two-thirds had annual household incomes below $75,000 and only 18% had incomes of more than $100,000.
More women than men own annuities, a trend that’s been increasing in recent years. Reasons for buying were fairly consistent: safety; the deferred-tax advantages; an effective way to save for retirement; ensuring that a surviving spouse would have continuing income; and providing a good source of emergency funds in case of a catastrophic illness or a lengthy nursing-home stay.
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It's perplexing. We’re Allianz Life – the nation’s leader in fixed index annuity sales
for eight years running.
1And we’re part of Allianz SE, the 14th largest company in
the world.
2Even so, most Americans can’t pronounce (much less spell) our name.
Fortunately, the people who do know us are our customers. They’ve learned how
an Allianz annuity can be an important part of their financial strategy.
Find out for yourself. Visit www.allianzlife.com to view our Why Allianz video.
Allianz: Financial solutions from A to Z.
1
Allianz Life Insurance Company of North America (Allianz Life); National Underwriter, 2001-2008.
2
“Forbes Global 2000,” Forbes, April 21, 2008. Forbes’ ranking is based on a composite of sales, profits, assets, and market value.
Allianz Life Insurance Company of North America
Allianz Life Insurance Company of New York
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Today’s annuities, which come in individual or group plans, generally include death benefits, withdrawal and payout opptions, and benefits triggered by disability or in-capaciation. Many charitible and educational institutions offer tax-deductible contracts that pay the insured for life, with any remaining funds going to the sponsoring organiza-tion. Variable annuities, which
are subject to investment risk, fall under federal securities regulation. Fixed annuities are considered an insurance prod-uct and are state-regulated.
Fixed-annuity customers are “generally looking for a balance between protection and income with sensible tax advantages,” says Gary Bhojwani, president and CEO of the Minneapolis-based Allianz Life Insurance Co. of North America. He stresses the industry’s need to instill and maintain consumer con-fidence. “We don’t sell a tan-gible item,” he says. “We sell reputation and trust.”
A fuTure sAfeT y neT
Kevin R. Wingert, president of the Des Moines–based Ameri-can Equity Investment Life Insurance Co., is convinced that the most compelling ben-efit of fixed annuities is the assurance consumers have that their nest eggs are not vulnerable to market
volatil-ity. As he sees it, an increasing number of pre-retirement baby-boomers are buying annuities out of a conviction that they must go beyond Social Security and employer-funded plans to meet their retirement needs. “We’re selling peace of mind and what I like to call sleep insurance,” he says. “We’re the safe-money people for retirement money.”
According to Aviva’s Godlasky, annuities should play an important role in an individual’s or family’s asset- allocation decisions. “How much depends on the consum-er’s age, needs, and lifestyle,” he says. “It’s not a matter of one size fitting all.”
Some annuity sellers have been accused of high- pressuring potential customers and not disclosing such matters as high surrender fees for early withdrawals from a plan. They have also been criticized for selling poli-cies that are not suitable for elderly consumers, who are among the most vulnerable. A number of lawsuits have
been brought alleging such abuses. But while indus-try officials concede there have been some bad apples among the agents, stockbro-kers, investment advisers, and others who sell their products, they reject any suggestion that such prac-tices are widespread. They insist such cases present unbalanced portraits of the industry and scare potential customers away from prod-ucts that would be appropri-ate for them.
“Not all plans are created equal,” says Sam Beller, a New York annuity specialist, who points out that underly-ing guarantees vary accord-ing to companies and the plans they offer. He urges annuity buyers to make sure the contract is suitable for them and for their level of risk tolerance. “In addition,” he warns, “be wary of any-one offering annuities with double-digit returns, which are totally unrealistic. Make sure you’re dealing with a quality company and a trust-worthy agent.”
seT Ting indusTry sTAndArds
Kim O’Brien, executive director of the National Association for Fixed Annuities (NAFA), points to continuing efforts to strengthen the industry’s disclosure standards and ad-dress sales practices. A model law protecting fixed- annuities buyers developed by the National Association of Insurance Commissioners is in place in most states, she says, and is being enforced by insurance companies
A PoPulAr reTiremenT Tool
Sales of fixed annuities tend to rise when stock prices slump.
(in billions)
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With an annuity from Aviva, you don’t have to worry
about outliving your retirement income. We offer
a variety of products and payout options including
guaranteed income for life.
Let us help you look forward to a bright future.
Ask your fi nancial professional about Aviva today.
prosper
.
Not just a familiar adage, but a reality.
Aviva’s indexed life insurance and annuity products are issued by and all policy benefi ts are the
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as well as state regulators. In addition, NAFA established a Market Conduct Committee last September to foster in-creased focus on suitability, marketing, and recruiting to provide a safe and informed environment for consumers. Allianz’s Bhojwani, whose company was the first to designate a chief suitability officer, says it has adopted an extensive program of vetting new applications for an-nuity contracts to make sure they are appropriate. He is strongly optimistic about the future of the annuities
busi-ness in general. “There are a number of trends that make this a period of growth like no other,” he says, citing lon-ger lifespans, the impending transfer of wealth from one generation to the next, and declining confidence in tradi-tional retirement funds such as Social Security and cor-porate pension plans. “We see a time,” he asserts, “when we can make a difference in people’s lives like no other period before, and like no other industry.”
Aviva’s Godlasky is also enthusiastic about fixed- income annuities, and he is particularly proud of a pro-gram—called Wellness for Life—his company recently introduced in cooperation with the Mayo Clinic. Designed to help policyholders lead a healthy lifestyle, it provides a variety of services and products, including a health as-sessment, personal wellness web portal, and 24-hour access to the clinic’s nurse line. To make things better, customers can obtain cost savings on their premiums by having regular physical examinations and maintaining a body weight within an established range. ●
To advertise in our Annuities sections, contact Linda Lydon at 617.954.9420. For reprints, call Jo Mattern at 212.522.2582.
More women
than men own
annuities, a
trend that’s been
increasing in
recent years.
SPECIAL ADVERTISING SECTION
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please call us. Learn how American Equity’s Fixed Index
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