TheStreet – Variable Annuity Questions Answered
Published: March 11, 2009
Categories: Annuity Education, In the News, Investing
In this recent article from TheStreet titled, “Variable Annuity Questions Answered” by Melissa Gannon, AnnuityAdvantage.com CEO and Founder, Ken Nuss, is quoted regarding the confusion surrounding variable annuity guaranteed withdrawal benefit values. Here are a few excerpts from the article.
Variable annuity holders that are best positioned during this extreme market downturn are those with:
a) a guaranteed withdrawal benefit who can withdraw 5% to 7% per year for life regardless of market performance
b) that do not rely on income from the variable annuity above that 5% to 7%. For these folks, the account value, which fluctuates with market performance, is irrelevant. The withdrawal benefit could increase above the stated amount if the market increases, but that should be considered icing on the cake.
One unfortunate aspect is that the vast majority of people don’t understand the meaning of the guaranteed withdrawal benefit value — the amount that has grown each year by the 5% to 7% guaranteed rate.
“Eight of the 10 people who call our office asking for advice don’t understand what they have,” said Ken Nuss, CEO and founder of AnnuityAdvantage.com. “They believe that the guaranteed benefit value can be withdrawn in a lump sum.”
These annuity investors want to withdraw this amount, but can’t, he said. Instead, if they need all the cash now, they can only withdraw the account value which is down roughly 40% in the past year, he explained.
According to Nuss, the most unfortunate of this group are those already in retirement or within a year or two of retiring who planned to use the variable annuity proceeds to live on. They simply don’t have the time to make up the loss.
Even worse, are those folks who purchased a variable annuity expecting to earn a certain amount each year while also withdrawing from it. In many cases, the agent sold these variable annuities on the assumption that the average gains would significantly outpace the percentage being withdrawn. Those folks are essentially reverse dollar-cost averaging by withdrawing as the market declines, meaning that they are accelerating the decline in their account value.
You can read the entire article here: