Life as a retired Fear survive Cash Profit

Sales of so-called mountain climbing immediate annuities as retirees are attracted by the life of the payments guaranteed by the U.S. insurance companies.

Immediate annuities pay a fixed periodic amount of money for life in exchange for a lump sum payment. New York Life Insurance Co., the largest life insurer in the United States, 80 percent reported an increase in sales contracts during the first quarter of the previous year.

"This is just the tip of the iceberg," said Chris Blunt, Executive Vice President of retirement income security in New York Life. "More and more baby boomers need to transform assets into income, they choose income annuities to ensure that they can at least cover basic expenses."

Sales of immediate annuities, which begin to make payments to investors within 13 months from the time they are purchased, rose 30 percent to $ 8.6 billion in 2008, according to estimates by analysts industry research Beacon in Evanston, Illinois. The gain compares with 15 percent of the decline in sales of variable annuities last year and the overall increase of 50 per cent of sales of fixed annuities, said the New York-based Insurance Information Institute, which uses data from Limra International Inc

Insurers rely on income from rents to offset depreciation of investments of the collapse of U.S. mortgage market. The total industry losses were over $ 190 billion since the beginning of 2007, according to data compiled by Bloomberg. There were a total of 30 cuts for companies in the industry of life insurance from Standard & Poor's since 2008, including multiple losses of certain companies.

Irrevocable Control

Saying that the planners of retirement because of fixed payments and loss of control over the initial investment, the payout annuities should not be the only consumer savings plans. Immediately from an annuity contract irrevocably gives control of the lump sum to the insurance company, retirees can no longer access their cash.

As life expectancy increases, more people want to cash flows do not survive and the protection of unpredictable market fluctuations, "said Cathy Weatherford, chief executive officer of NAVA, the Reston, Virginia based industry on trade group variable annuity and life insurance products.

Immediate payment annuity rates vary depending on factors such as age, sex and size of the initial investment.

A 65-year-old male who gives $ 100,000 would be $ 650 per month, or $ 7800 per year for life, for the purchase of immediate annuities in New York Life, which invests mainly of silver high-grade corporate bonds. This corresponds to a gain of about 8 percent, according to Blunt.

The annual distribution is closer to 6 percent because retirees must take into account the return of their principal over $ 100,000 in life expectancy, "said Peter Katt, an advisor in life insurance Mattawan, Michigan.

Lock in Rates

A major disadvantage of an immediate annuity is that it locks in current interest rates, "said Katt. "With massive, unprecedented debt, we might have 12 to 14 percent interest rates in a few years, reducing the value of future payments, Katt said. The average inflation rate was 2.8 per cent during the last 10 years, according to Bloomberg.

Inflation-adjusted immediate annuities are offered by some providers, at a cost. Retirees have lower periodic payments if they opt for a hedge against inflation or extend payments after death in the interest of a spouse. If a 65-year-old male was an inflation rate of 3 percent adjustment, monthly payment of $ 650 from New York Life diminish to $ 488 for the first year.

State Guaranty

Insurers' strength is crucial, because the investor gives control of the money to the company, said David Schiff, editor of Schiff's Insurance Observer, New York-based industry newsletter. If consumers are concerned about credit risk, they have to buy the annuities, life insurers, said Schiff.

When an insurance company is declared bankrupt, the State guarantees the association in general to make payments to the pension until the contractors are transferred to another insurance company or to continue payments for the benefit of the limits of each state, said Sean McKenna, a spokesman for the National Organization of Life and Health Insurance Guaranty Associations in Herndon, Virginia.

Coverage limits vary by state with all provide at least $ 100,000, McKenna said.

Adding the capital

The U.S. Treasury said April 8 that some life insurers are eligible for capital infusions under the federal program of aid and applications are under consideration. The companies, which hold about $ 1 billion of corporate debt, need help from the Treasury to assist the countries of the credit markets by buying more bonds, according to the American Council of Life Insurers.

Payments vary considerably between insurers, "said Weatherford of NAVA. Monthly payments range from $ 629 to $ 745 for an investment of $ 100,000 a 65-year-old male, according to a survey of six issuers Hueller societies, a Minneapolis data research company and a provider of platform annuity.

If an immediate annuity is funded by a 401 (k) or individual retirement account, the periodic payment will be taxed as ordinary income, because the pension fund money has never been imposed, "said Scott Ford, a financial advisor to Cornerstone Wealth Management Group in Hagerstown, Maryland.

When the money has already been imposed is used to purchase the immediate annuity, only the interest payments will be determined in place of the initial capital is taxed, "said Ford.

'Personal Pension'

"Immediate Annuities are like your own retirement," said Gail Buckner, a certified financial planner in San Mateo, Calif., Franklin Resources Inc. They can make a speech, but you need growth. "

Buckner has recommended that immediate annuities to pay fixed costs for each day are not covered by income from Social Security or pensions and can be more growth-oriented investments with others to overcome the inflation.
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"The disadvantage of annuities is the immediate inflation risk, but I have clients who sleep more comfortably at night in the knowledge of other investments may fluctuate due to their basic needs are covered by the immediate annuity," said Ford Cornerstone. (News Bloomberg)