A Golden Egg?; Battered Retirement Investors Regaining Inter

Saturday, Apr 25,2009, 9:11:23 AM Click:

Copyright 2009 P.G. Publishing Co. Pittsburgh Post-Gazette (Pennsylvania)

April 23, 2009 Thursday Correction Appended SOONER EDITION

SECTION: BUSINESS; Pg. C-1

LENGTH: 737 words

HEADLINE: A GOLDEN EGG?; BATTERED RETIREMENT INVESTORS REGAINING INTEREST IN FIXED ANNUITIES, BUT THEY AREN'T FOR EVERYONE

BYLINE: TIM GRANT, PITTSBURGH POST-GAZETTE

Fixed annuities fell out of fashion when the stock market was rising, but are getting a second look these days from investors whose retirement accounts were battered when stocks tumbled.

quot;This economy has caused people to fear outliving their money,quot; said Carrie Coghill Kuntz, president of wealth management firm DB Root Co., Downtown. quot;An immediate annuity takes away that fear because the insurance company promises to pay until a person dies.quot;

Unlike variable annuities, which pay an income that rises and falls based on the value of mutual funds, a fixed annuity is a contract in which an insurance company makes a consistent payment to the investor until he or she dies. The insurance company guarantees both the earnings and the principal.

Insurers are willing to assume the risk because they plan to invest the annuity premium in long-term government securities, stocks and corporate bonds that yield a higher rate of return, making a profit on the spread.

quot;My goal with my clients is simplicity. I don't want to have to apologize to them,quot; said David Reindel, a financial adviser in Mystic, Conn., and author of quot;Don't Die Broke.quot;

He said not one of his nearly 500 clients who are retired or about to retire has money invested in the stock market.

quot;We lay out a plan and they know what will happen as long as they follow the rules. Most people are not saving for retirement in a guaranteed manner where they have some certainty of what the number will be in the end,quot; he said.

A general guideline that financial planners use when estimating how much of a retirement nest egg can be safely withdrawn each year is 4 percent. Any amount higher could put an investor at risk of outliving the money saved.

Fixed rate annuities may eliminate that worry. Typically, a 60-year-old person who purchases a fixed annuity can get a lifetime guarantee of about 5 percent of the amount invested on an annual basis. A 70-year-old person could get about 6.5 percent a year.

But the lifetime guarantee is only as good as the full faith and credit of the insurance company making the promise.

The broad declines that have occurred in several markets such as stocks, bonds and mortgage-backed securities, have also wiped out investment returns that insurance companies are relying on to help them make annuity payments.

Life insurers may be next in line to receive federal funding from the Troubled Assets Relief Program. MetLife, the No. 1 seller of fixed annuities in 2008, is among several insurance carriers asking for government help.

quot;You have to ask yourself, where is the insurance company putting my money to generate the guarantee?quot; Mrs. Coghill Kuntz said.

Carol Fabbri, managing partner at Fair Advisors in Denver, said U.S. treasury bonds and CDs are an alternative to annuities that offer similar guaranteed rates and payments but with lower fees and less complexity.

quot;If the annuity is set up for lifetime payments and the investor passes away shortly after setting up the account, the remainder of the money goes to the insurance company unless extra provisions are purchased,quot; Ms. Fabbri said.

Annuities can provide financial security in uncertain times, but they are not suitable for everyone.

Investors in their 20s and 30s would not benefit as much from annuities because they have many years to absorb market declines. Likewise, the extremely elderly should avoid them because they might never realize the benefits.

The best ages for buying annuities is from the late 40s up to the ideal age of 55, all the way to 75.

quot;I have a love-hate thing with fixed annuities,quot; said Jim Emanuel, president of Emanuel Financial Consultants in Mt. Lebanon. quot;I've been doing this for 35 years and some of the worst products I've seen on the market are fixed annuities.quot;

He said some insurance carriers will offer an attractive rate of 9 or 10 percent the first year, but then the guaranteed rate goes to 1 percent. Some contracts, he said, have surrender charges that last as long as 20 years with fees as high as 30 percent the first year.

quot;Anytime an insurance company makes a promise, make sure it's in writing and it will save a lot of grief,quot; Mr. Emanuel said. quot;I'm a fan of fixed annuities and I use them, but you really have to be careful.

quot;A good one is great for your portfolio. But you won't realize how bad a bad one is for a couple of years.quot;

NOTES: Tim Grant can be reached at 412-263-1591 or at tgrant@post-gazette.com /

CORRECTION-DATE: April 24, 2009

CORRECTION:

MetLife, a leading provider of fixed annuities, has elected not to participate in the government loan program for troubled financial institutions. An article yesterday incorrectly stated the company was in line with other life insurers to receive Troubled Assets Relief Program funds.

GRAPHIC: DRAWING: By Stacy Innerst/Post-Gazette