While we are somewhat critical of immediate annuities and, more to the point, their restrictions we do see value for the product. When these products are used in conjunction with an asset allocated portfolio they can and do significantly reduce risk.

Immediate annuities have a reputation about them as being very inflexible and lack the ability to keep up with inflation. While that is true of older products newer products offer some flexibility. Many immediate annuities have inflation protection riders now, where the payments can increase by 3 or 5% a year, and many newer products have cash refunds to the beneficiaries so the insurance carrier will not keep all of the money when the owner passes away. These new features have increased interest in the old immediate annuity and sales have been very strong over the previous 12 months.

As the Baby Boomer generation retires we expect to see an increase in annual sales for the next few years. The problem with most of the products sold is that investors do not shop around for the most competitive immediate annuity rate. There are several websites dedicated to find the best rate for you, like Immediate Annuity Solutions, but few investors are using these valuable sites. Instead they settle for whatever their financial advisor or insurance agent recommends.

Because of this we highly recommend that you shop for an immediate annuity before just settling. After all these are a lifetime commitment so use the resources that we have available. We like ImmediateAnnuitySolutions.com, but will add more sites as we find them.

For years The Hartford’s Director variable annuity was the rock of the variable annuity industry. For almost a decade it was the best selling broker sold variable Annuity product, behind TIAA-CREF. Last week that legacy came to an end as the Director variable annuity ceased to exist for new investors and was folded into the Hartford Leaders product.

The Hartford’s Planco division once boasted that the Director product will always be the best selling variable annuity with the Leaders product a close second. Sadly, they were the last to see that the writing was on the walls years ago and single managed variable annuity products were irrelevant. In 2005 they tried to turn the ill fated Director Annuity around by introducing a multi-managed approach, they added some 55 different sub-accounts from various managers.

What they did not count on was that their success with the Hartford Leaders product would undo what they were trying to accomplish. The Leaders variable annuity had 4 main fund families that went deep, offering many sub-accounts from each manager. All of the fund families were top shelf names, American Funds, Franklin, MFS and AIM which are among the top selling fund families in the advisor arena. The Director annuity though went for the shallow and wide, offering many Hartford sub-accounts but only a smattering of other money managers.

The Leaders annuity saw huge growth, from nothing in 2000 to $10 billion or so in recent years. That success, in our opinion, tainted the efforts of the Director product. Also, the other issue was saturation of the marketplace with both the Leaders and the Director wholesalers covering the same advisors. It was total overkill.

It was no surprise that the Director failed, it was too little too late.

When talking about annuities the media is dumb. They never let the public know what type of annuity they are talking about or the fact that there are many different types of Annuity contracts in the marketplace. This story was NOT about variable annuities, instead it was about equity index annuities.

The problem with major media outlets is the fact that they try to tell a story in an hour or less. While the agents “caught” on the show looked like they were trying to pull a fast one, and some were, Dateline never let them finish their sales pitch. While Annuity IQ agrees that equity index annuities are not good investments, we also all agreed that the story was not telling the whole truth about the products. They also did not tell their viewers that the sales people were selling specific companies index annuities. More than likely the agents were selling Allianz, Midland National and Aviva equity index annuities, most of those products are not good for investors.

The bottom line is variable annuities were not discussed and many facts were not disclosed. Equity index annuities need to be regulated more and the industry needs to be cleaned up. While Variable annuities have their faults, they do offer much more than equity index annuities with a few differences. Variable annuities offer real upside potential for investors, shorter surrender schedules and better guarantees and liquidity. While equity index annuities offer long surrender schedules, limited, very limited, upside potential, limited liquidity and extremely high commissions to the agent.

Be very careful when selecting any annuity product and use Annuity IQ to identify the best variable annuity products.

This week was a historic week by anyone’s means of measurement. We witnessed a catastrophe that was beyond all belief, Bear Sterns went out of business. To say we were stunned is an understatement.

While it is no secret that Annuity IQ knew the housing market was going to implode (it was written about on this very blog over a year ago) the shear scope of the situation is beyond belief. The sub-prime debacle is being blamed for this implosion, but it is not just sub-prime, it is AAA rated borrowers who are now falling behind to the banks.

The Fed, in their infinite wisdom, greatly underestimated this entire situation and they still are. The buyout of Bear Sterns by JP Morgan saved the markets as the 5th largest broker in the world declaring bankruptcy would have caused unbelievable carnage in the equity markets. The problem is Bear was not the only one in trouble, rumors are abundant that Lehman Brothers and even Merrill are still in trouble.

What can stop this liquidity problem? Nothing, in short. The Fed has pumped over a Trillion dollars into the banking system over recent months and it has done little to ease the pain. Years of mismanagement from the banks and the executives led to their very destruction. This industry has hated regulations and restrictions literally begging the government to stop regulating them, but now they are begging for tax payer dollars to bail them out.

While this is the only time we would ever advocate a bailout for the free markets, it is clear that not all of the guilty parties should be left off the hook. Bonuses need to be repaid to depositors and shareholders, CEO’s need to be fired and investigated and, yes, some banks need to fail altogether after all this is a capitalistic market system we have, survival of the fittest. It is also impossible to bailout the entire financial system as it is too large for the Fed to save on its own.

How does this relate to variable annuities? Well, read on.

Running a pro-annuity website leads to a lot of hate mail from the people who hate variable annuities. We receive many emails saying we are just a propaganda machine and we feed ignorance about a product that is “worthless”. All the pundits say that the guarantees offered by Variable annuities are not worth the cost.

I beg you to say that to the share holder of Bear Sterns who bought the stock a year ago at $170/share, or someone who bought the stock last week at $30/share. These pundits swear by index funds and tactical asset allocation with complete market exposure. While we also advocate market exposure and asset allocation, we also believe that the inherent risk of investing in equities needs to be mitigated by insuring some of your money.

This is where living benefits come into play. While 5% or 6% income a year may not sound like a lot you must consider that those numbers are guaranteed to be based on at least your initial deposit. If you experience positive investment returns then your withdrawals may go up as well. This is called downside protection with upside potential.

No index fund or tactical asset allocation program could have saved you from the carnage of the last 6 months. Nor would it save you from the collapse of the financial system, outside of an annuity. What those investments could do inside of a variable annuity is buy you piece of mind to know you will not loose everything.

So, all you people who write to use saying variable annuities are worthless, all we need to do is to ask you to turn on your TV and look at the returns in the equity markets to make our case. While this market may turn around, those who you guided into investments with no protection and told them to take withdrawals from those funds will never recover.

Those who bought a variable annuity on the other hand are safe in knowing they are guaranteed income forever.

If you have not picked up John Huggard’s Book, “Fifty Reasons why variable annuities may be better Long-Term Investments than Mutual Funds” you should grab your copy today.

You can get your copy here: John Huggard This is not an affiliate program and this has nothing to do with Annuity IQ. I just believe so strongly in the information that I believe every adviser should read this material.

Here is the link again: http://www.atlasbooks.com/marktplc/00694.htm

If you do not know who John Huggard is here is his bio:

John Huggard is the senior member in the Raleigh law firm of Huggard, Obiol and Blake, P.L.L.C., limiting his practice to estate planning and financial litigation. John is also a Certified Financial Planner and full-time faculty member at North Carolina State University where he has taught introductory and advanced courses in law and personal finance for more than twenty-five years. John is an Alumni Distinguished Professor and is a member of the Academy of Outstanding Teachers at North Carolina State University. John is a Board Certified Specialist in Estate Planning and Probate Law. He is the author of The Administration of Decedents’ Estates in North Carolina (Michie Pub. Co.), The North Carolina Estate Settlement Practice Guide (West Pub. Co.), and Living Trust, Living Hell: Why You Should Avoid Living Trusts (Kendall-Hunt). Additionally, John has published several magazine articles on legal and financial matters. John has been extensively interviewed and quoted in The Wall Street Journal, Smart Money, USA Today and other financial publications. John regularly lectures to professional groups on topics dealing with variable annuities, taxation and finance. John received his undergraduate degree and law degree from the University of North Carolina at Chapel Hill and his master’s degree from Duke University. John’s hobbies include flying, competitive target shooting and scuba diving. He is recently retired from the U.S. Navy where he served as a captain in the JAG Corps.

Money Magazine and Mr. Updegrave have written another mind numbing article where he made a startling revelation to his readers. Whether or not they saw the revelation is another story, but it is right there in print.

In this article Mr. Updegrave said, “For example, I’m fine at tinkering with retirement calculators and monitoring investments – though I’m careful to keep my wife informed. She’s good at the big-picture stuff.”

The part of the quote I want to comment on is the, “She’s good at the big-picture stuff” because this is his overall problem. He is fine with ‘tinkering’ with calculators, but is poor with the big picture stuff, both of these admissions run dangerously close to self admitted lack of knowledge and imagination.

As an expert shouldn’t you do more than just ‘tinker’ with things and shouldn’t you have a grasp of ‘the big picture’? You would think so, but apparently this stuff does not matter to him. Financial advisers do more than just ‘tinker’ with calculators and peoples financial well being and try to match the investment selections for their clients to their goals, risks and objectives while keeping ‘the big picture’ in mind.

Since Mr. Updegrave does not get ‘the big picture’ and only likes to ‘tinker’ with peoples financial well being it should be a red flag to his readers. Those words, as subtle as they were, in my opinion, were an admission of the truth. He simply does not understand the common problems of investors and likes to ‘tinker’ with the advice he gives and he does not worry about ‘the big picture’.

Tinkering with people’s money and investments is horrible and an insult to people who take him seriously. Do you see doctors tinkering with people’s health? Of course not, but I guess it is OK to tinker with peoples financial health. You can not do a financial plan on a calculator because there is more to it than simple calculations.

I believe this is why his advice is so generic and cold, it is simple repetition and it always goes like this; “Invest in the S&P 500 index fund and forget other advisers advice”. When I read those recommendations all that flashes through my head is HAL, from 2001: The Space Odyssey, saying those words in his cold computer voice…am I giving away my age here?

Since he admittedly does not grasp the big picture and only likes to tinker around with calculators it is painfully obvious why he does not like variable annuities. You need independent thought to understand the product and how it works and where it fits into the big picture of retirement security.