Two insurers, hoping to attract baby boomers heading into retirement, have introduced variable annuity products that guarantee a hefty 7% return on the holder’s investment in each of the first 10 years of the contract.
Two insurers, hoping to attract baby boomers heading into retirement, have introduced variable annuity products that guarantee a hefty 7% return on the holder’s investment in each of the first 10 years of the contract.
ING USA Annuity and Life Insurance Co. of Des Moines, Iowa, contends that its product — LifePay Plus, which is offered as a rider on any annuity product — offers one of the industry’s highest roll-up rates.
Meanwhile, Nationwide Financial Services Inc. in Columbus, Ohio, said last week that its Nationwide Lifetime Income Rider will raise its 5% roll-up to 7%, effective Sept. 4.
These promises sound almost too good to be true, said Mark Kenison, a certified financial planner and owner of Waxhaw, N.C.-based Kenison Financial Services Inc. “To guarantee a 7% step-up each year does seem a little aggressive to me,” he said.
But Mr. Kenison said he is interested in learning about these steeper step-ups and thinks that more insurers will follow suit.
For their part, both ING and Nationwide say they use advanced hedging strategies and carefully considered the risks before deciding to offer their products.
In the two weeks since its product launch, ING has been inundated with questions from financial advisers, said Mike Buchholz, retail annuities senior vice president and national sales manager for the independent-broker channel. Chief among the questions: How can ING afford to guarantee 7%?
“In 2006, we won an award for our internal hedging program. We take it very seriously,” Mr. Buchholz said.
Although the new products aren’t perfect for everyone, they offer more options than products in the past, said Eric Henderson, senior vice president of Nationwide’s Individual Investments Group.
“People want guarantees,” he said. “They like it when you can guarantee a nice income no matter how long they live.”
Mr. Henderson also said the company takes its promises seriously. “We run thousands and thousands of scenarios to determine the worst thing that can happen, and we structure a hedge program to protect us if the worst case does happen.”
Mr. Henderson thinks that more insurance companies will continue to tweak their products and offer more attractive riders aimed at baby boomers. The oldest baby boomers turn 61 this year, and annuities are aimed at people ages 57 to 62, he said.
