Generous withdrawal benefits for variable annuities — albeit with limits — continued their comeback in the third quarter, according to a report from Ernst & Young.
“It seems that companies are increasing benefits a bit at the older ages,” said Gerry Murtagh, manager of Ernst & Young's Retirement Income Knowledge Bank. The firm released its full report on third-quarter variable annuity changes this month.
Indeed, a handful of insurers rolled out bigger withdrawal benefits during the third quarter.
A total of 71 annuity changes were filed with the Securities and Exchange Commission during the period, according to John McCarthy, vice president of Advanced Sales and Marketing Corp., which is part of Morningstar Inc.
That is similar to the number in the second quarter and equal to about half the changes filed in the first quarter, he said.
“Most of the activity has been on benefits, but there's less activity on fee changes,” Mr. McCarthy said.
There have been about 21 new benefits filed with the SEC, he said.
Transamerica Life and Annuity had filed a prospectus for its Income Link guaranteed-lifetime-withdrawal benefit. Withdrawals can begin at 55.
Depending on how long those withdrawals last, clients can withdraw between 5% to 10% a year for a period of up to seven years. After that period, the withdrawal benefit tapers down to 4% a year.
RiverSource filed its SecureSource Stages 2 guaranteed-lifetime-withdrawal benefit with the SEC during the third quarter. The feature allows withdrawal percentages of up to 7%, depending on the investor's age, but limits on investment options apply.
SunAmerica Retirement Markets Inc., an American International Group Inc. subsidiary, this fall released Income Plus 6% Option 2 and Income Builder 8% Option 2. The former allows retirees to take 7% withdrawals at 65, which is up from the 6% allowable by the earlier version of Income Plus 6%.
Income Builder 8% Option 2 gives investors 8% guaranteed growth for up to 12 years, allowing 6.5% withdrawals at 65.
Once the account reaches zero, however, allowable withdrawals can slip down to 3% or 4%, depending on the age at which the client began withdrawals. There are risk management ramifications behind that feature, but it allows SunAmerica to “marry customer needs with corporate needs,” said Rob Scheinerman, senior vice president at SunAmerica Retirement Markets.
“Overall spending is substantially lower later in retirement. People pull back dramatically on other spending, including travel,” Mr. Scheinerman said.
E-mail Darla Mercado at [email protected].
