Annuitization can be a boon, say experts

There is value to annuitization through a single premium immediate annuity, but it’s simply a matter of communicating that point to advisers, according to a panel of insurance industry experts. Historically, advisers have been concerned about recommending annuitization to their clients for fear of losing access to their money in the annuity, said Mike Gilotti, head of business development at General Re-New England Asset Management Inc. He led a panel discussion on using single premium immediate annuities as part of a comprehensive plan at the NAVA Marketing Conference in La Quinta, Calif. “It’s not that [the concept] is difficult, it’s just different,” he said. “It’s a simple product to understand, but we need to do the right type of training.” NAVA, teaming up with Milliman Inc., also unveiled the first in a series of research results at the panel, illustrating some case studies in which SPIAs worked as part of a comprehensive plan — as opposed to just using systematic withdrawals from a retirement portfolio. In one example, a 65-year-old couple with $2.5 million in retirement savings in a portfolio with 85% of the allocation in equity and 15% in bonds wants to bring in $140,000 in annual income after retirement. Without a SPIA, the highest probability of meeting that goal is only 69%, according to the research. However, if that couple adds a SPIA, purchased with 70% of the retirement assets, and then places the remainder of the assets into mutual funds with a 55% equity/ 45% bond mix, the likelihood of meeting their income goal goes up to 84%. Additionally, the withdrawals in the early years of retirement are coming from the SPIA, and not the mutual funds. “A lot of money has gone into the SPIA contract, but it has allowed you to hardly take any systematic withdrawals,” said Tim Hill, consulting actuary and principal of Milliman. “And when you do, you’re taking small portions.”