Actually i'm paraphrasing a bit, as Ben's actual article is entitled " How not to ruin your life" and today's commentary on Yahoo Finance is about using the new variable annuity contracts to manage risk in retirement or if you have a large sum of money you need to use to guarantee income for life. ( Sound familiar to anyone in the structured settlement industry?)
You can read his entire commentary here.
However, for those of you who like summaries in lieu of actual reading the highlights are as follows:
1. New features included in variable annuity contracts now allow for 5% annual guaranteed withdrawals of funds for life, regardless of actual investment performance. In reality many life companies are now offering payments up to 9% guaranteed for life, depending upon attained age at which the rider is purchased, but the point is that it is a unique benefit that allows for transference of market risk to a life insurance company instead of bearing that risk yourself.
2. The funds stay fully invested in equities, which is essential for people to retain the ability to match market yields and keep up with inflation. This means that while your base income of 5% is fixed upon a starting date amount, your funds stay fully invested in a portfolio of variable accounts and then your based income amount is reset every 5 years or so, providing you with the potential for a step up in your income at that time. If markets decline however, you know your income won't decrease despite falling equity values.
3. Many of these contracts have a bonus feature at deposit that allows you to get an immediate step up in value for your income amount. Basically, if you put $500,000, in many contracts you will receive anywhere from a $15,000 to $25,000 bonus at deposit, thus allowing investors to catch up and set their base amount for income somewhat higher.
4. All of these contracts have locked in death benefits that are paid income tax free upon death to the annuitant. Few if any investments enjoy the death benefit step up features available in the new variable annuity contracts, and as a result the income tax free death benefit is a major value in paying to beneficiaries a figure that could very likely be much more then the market value in a down market.
These are really outstanding annuity options for retirees, people considering retirement or injury victims who are contemplating what to do with their award. I've written about them before here on The Settlement Channel but I really do urge you to take the time to learn more about them. They can be complex, require you to work with a licensed registered representative and the reading material can be daunting. However, at their core they are very simple, have great appeal and provide a degree of security for income oriented investors that is almost unmatched in other financial vehicles.
As I've said before, the structured settlement industry ignores these products at their peril as these have many of the primary benefits of a structured settlement annuity, minus many of the drawbacks. You can bet i'm already appointed to offer these to my clients and do so on a regular basis.