New annuity solutions may prove costly

Insurance executives highlighted the income benefits behind some new annuity solutions and guarantee wrappers, but the costs behind these products may rise in light of a careening market. The three primary retirement concerns are turning assets into income, managing risk and equity market volatility, said Holt McGee, national sales manager of New York-based MetLife Inc.’s annuity agency distribution. He was a speaker this morning at “The Continuum of Income Products,” a workshop at the annual LIMRA conference in Hollywood, Fla., which began yesterday and will conclude tomorrow. LIMRA International Inc. is based Windsor, Conn. Because the ideal 4% withdrawal rate from an investment account is unrealistic for many investors over a 30-year retirement, financial advisers need insurance-based solutions, such as guaranteed living benefits, single-premium immediate annuities and longevity insurance, Mr. McGee said. But advisers have been hesitant to recommend SPIAs, as they overlook the benefits of having a lifetime income stream and focus on the cons of the annuity’s being an illiquid and irrevocable product, he said. In one example, Mr. McGee looked at a hypothetical $100,000 SPIA versus a $100,000 investment in a half-stock/half-bond investment portfolio with a 4% withdrawal beginning at age 65. A SPIA with no premium refund guarantee permitted $708 a month in distributions, compared with $333 a month from the investment portfolio. “We have to start thinking of SPIAs more favorably,” Mr. McGee said. “With SPIAs, you’re getting more output with less input.” Guarantees wrapped around managed accounts comprising mutual funds or exchange traded funds are another fresh alternative for advisers, said Tom Devine, divisional vice president of Richmond, Va.-based Genworth Financial Inc.’s institutional retirement group. The company’s wealth management and annuity teams have created the LifeHarbor product, which provides guaranteed income from a managed account. However, Mr. Devine noted that if the equity market continues to be unstable, the costs of these riders and guaranteed-income products will have to go up. “If the marketplace stays where it is, you will see changes in pricing and changes in the future structures of these types of products,” he said.