Stabilize Your Asset Allocation Model with Annuities

Insurance companies offer guaranteed annuity fixed interest rates and guaranteed lifetime income. Presently, the insurance industry is the only industry offering such guarantees. But guaranteed interest rates and income payouts can be dramatically different from company to company, even though they’re fishing out of the same government debenture pool.

The discrepancies between companies could be a matter of bond maturities or just superior portfolio management. But the spread in payout rates between companies who sell income annuities is so significant one has to wonder why? The answer: mortality credits—the secret sauce of the insurance industry. Some dare to call it annuity alpha. Insurance is predicated on the law of large numbers. The insurance industry has huge consumer participation in their mortality products, i.e., annuities and life insurance. There’s an estimated 830 life insurance companies currently in the United States. Approximately 62 percent of consumers say they have life insurance,¹ and a little more than 7,000 die each day,² so the risk is spread out over a large population.

Some people die sooner, some later than the average. The companies who experience lower mortality generally offer higher mortality credits in their annuities. So the annuity payout in a guaranteed lifetime income scenario has three components to it: principle, interest and the secret sauce of mortality credits. In general terms, tax-deferred, fixed interest rate annuities pay more guaranteed interest than bank certificates of deposit [CDs] with earnings that accumulate tax deferred until you access the policy. Income annuities offer guaranteed income you can’t outlive using single premium immediate annuities (SPIAs), deferred income annuities and guaranteed lifetime withdrawal benefits from indexed annuities. Watch the interview with popular platform speaker, best-selling author and PBS host Tom Hegna, talk about integrating annuities in retirement. http://rightonthemoneyshow.com/stabilize-your-asset-allocation-model-with-annuities-tom-hegna/