Mark Iwry announced the new rule - declared effective immediately - at an annuities industry conference on Tuesday, and it was a crowd pleaser.įor retirement savers, the math just got harder. The insurance industry loves this new rule, too, so consumers can be excused for taking some time to consider all the costs and angles. A saver who put 10 percent of her nest egg into one of these policies could withdraw as much as 6 percent of her retirement account in the first year instead of the safer and more traditional amount of 4 percent, estimates Christopher Van Slyke, an Austin, Texas, financial adviser.Ī fee-only planner who tends to view many insurance products with some skepticism, Van Slyke likes these longevity plans for those reasons and because they convey a tax break, too: IRA and 401(k) money spent on these policies - up to 25 percent of the account’s value or $125,000, whichever is less - is exempt from the required minimum distribution rules that force savers over 70 1/2 to make withdrawals that count as taxable income. It also lets you take bigger retirement withdrawals in the years between 60 and 80.
That takes the worry of outliving your money off the table. Not everyone will live beyond 80 or 85, so those who do so can collect more income than they would have been able to produce on their own. Like most insurance policies and traditional pension plans, these “longevity” plans take advantage of the pooling of many lives. For example, a 60-year-old man who spent $50,000 on a longevity annuity from New York Life could lock in $17,614 in annual benefits when he turned 80, the company said. These so-called deferred “longevity” plans kick in with guaranteed income when the buyer turns, say, 80 or 85 years old. The new rule focuses on a particular kind of annuity. Treasury Department has just given a tax break and its blessings to retirement savers who want to buy long-term deferred annuities in their 401(k) and individual retirement accounts. “I found riders that were more expensive from lesser-rated but strong companies, and riders that were more generous at a similar price, but none of which had the same rating as New York Life,” he said.(Corrects 8th paragraph to say annual benefits, not monthly benefits) Alexander found the Clear Income rider to be on par with what’s available in the indexed annuity market, but he added that advisers need to consider rider fees and insurer ratings when comparing products. Whether a client will end up with better results in a fixed annuity with a living benefit and roll-ups or in an indexed strategy with a cap and similar living benefit features is less clear, however, he said. “This would be for someone who is conservative, closer to retirement and looking for a guaranteed floor of income at retirement,” Mr. Both products are aimed at similar consumers. Given the novelty of the New York Life product, Jeremy Alexander, president of Beacon Research, noted that it would be logical to compare it to what’s available in the indexed annuity market.
Moderate allocation and conservative allocation were in first and second place, respectively, for where variable annuity net assets were invested.Ĭlear Income came out in October, but has not been announced. show that during the third quarter of 2014, fixed accounts ranked third in terms of market share of total net VA assets, accounting for 9.34% of assets. Goldstein noted that while variable annuities offer upside opportunity, since clients can invest in the equity markets, investors tend to put a large portion of their VA assets in fixed accounts, which credit a fixed rate of interest. Given the combination of Clear Income’s rates and roll-up, “our guaranteed product compares favorably to the variable annuity,” Mr. “We think about the variable annuity market, which is still $80 billion a year in sales,” said Ross Goldstein, managing director at New York Life’s retail annuities marketing division. The life insurer has its eyes on the market for variable annuities with living benefits. The withdrawal rate is tiered and sits at 5.25% for clients aged 65 to 69. That additional feature costs 75 basis points. What’s different is that the insurer is offering a guaranteed lifetime withdrawal benefit, a feature that grows clients’ income benefit base - the notional number used to calculate withdrawal benefit payments - for up to 10 years at 5%. The surrender schedule for the product spans seven years. New York Life Insurance Co.’s Clear Income acts like a traditional fixed-rate annuity: It grants a guaranteed initial interest rate for a seven-year period, after which clients are up for an interest rate that renews every year. And it might be a good competitor against a number of existing variable and indexed annuities. Here’s something you don’t see every day: a fixed deferred annuity with a guaranteed lifetime withdrawal benefit.
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