Generous withdrawal benefits for variable annuities — albeit with limits — continued their comeback in the third quarter, according to a report from Ernst & Young.
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,” observed Gerry Murtagh, manager of Ernst & Young's Retirement Income Knowledge Bank. The firm released its full report on third-quarter variable annuity changes last week.
Indeed, a handful of insurers rolled out bigger withdrawal benefits during the third quarter.
During the third quarter a total of 71 annuity changes were filed with the Securities and Exchange Commission, according to John McCarthy, vice president of Advanced Sales and Marketing Corp., now part of Morningstar Inc.
That's similar to the second quarter and equal to about half of 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 noted. 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 age 55. Depending on how long those withdrawals last, clients can get between 5% to 10% in withdrawals per year for a period of up to seven years. After that period, the withdrawal benefit tapers down to 4% per year.
RiverSource filed its SecureSource Stages 2 guaranteed lifetime withdrawal benefit with the Securities and Exchange Commission 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., the American International Group subsidiary, this fall released Income Plus 6% Option 2 and Income Builder 8% Option 2. The former allows retirees to take 7% withdrawals at the age of 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 age 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,” he said. “By aligning that income stream with the way customers want to spend it, we give them what they want.”
