The variable annuity with a lifetime income benefit--sometimes known as an exotic put option or an embedded derivative--was a product that has come back to bite many of the companies that sold it. Was this product ever the best solution for the Boomer retirement challenge?
"TIPS can play an important role in most retirement portfolios," writes this Tokyo-based economics professor. "... Like other assets, "TIPS have risks and do not eliminate the need for broad diversification." This article first appeared in Advisor Perspectives.
As the living benefits of variable annuities became more valuable during the financial crisis, contract owners astutely held on to them, according to a presentation by Ruark Consulting at a recent Society of Actuaries meeting in Chicago.
Like the Ford Mustang in 1965, the variable annuity with a lifetime income rider seemed like the right Boomer product at the right time in 2006. Then came the Crisis. A new survey by Cogent Research and the Insured Retirement Institute looks at where the VA is today and where it's headed.
"We have been buying inflation-linked bonds and selling government bond futures against them," writes the head of fixed income at Old Mutual Asset Managers.
"The industry’s large in-force book of variable annuity business will continue to be a drag on profitability over the near term," the ratings agency said in a recent bulletin.
The fact that 10-year Treasury rates are only about 2% indicates the market’s belief that the U.S. economy will grow slowly over the next decade, Vanguard pointed out.
Retirement Income Journal will not appear on December 28, 2011, in observance of the Christmas holidays. The next issue will appear on January 4, 2012. To all our subscribers and readers, thank you for making 2011 our best year yet!
Economic headwinds include “market volatility, Europe's banking and fiscal crises, a polarized US Congress and overzealous fiscal restraint in Washington.”
White (pictured at left) joined Allianz Life in 2009 as chief administrative officer responsible for compliance, information technology, operations, and suitability.
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