Wall Street Journal Response - CORRECTION
NAFA, the National Association for Fixed Annuities, promotes the awareness and understanding of all fixed annuity products. Your June 7th article, “Annuities: Fine Print Needs a Check”, provides valuable information to help consumers understand these important retirement planning products. We recognize that your column had to make generalizations due to space constraints and are sure you would agree that the following fine print in a fixed annuity contract deserves a follow up column and NAFA would welcome the opportunity to provide information to you.
But first, the association needs to correct the data source that told you the highest current rate for a five year annuity is 4.65%. As of 6/11/2008 it is actually 5.30%. (SOURCE: annuityratewatch.com)
Now to the other fine print. Stating that younger generations may not be suited for fix annuities ignores the vital role a fixed annuity may play for a portion of retirement funds. And what do you mean by younger. With people living well into their nineties, baby boomers are looking at potentially 30 plus years of retirement. Remember, “younger” generations have been criticized for not saving sufficiently for retirement. Those who have the foresight to set aside money for their retirement are statistically paying into qualified distribution plans - 401(k), 403(b), etc - which are not available for withdrawal without a tax penalty until age 59 ½. This is no different than the penalty for withdrawing funds from an annuity before age 59 ½.
It is true that there are products available with longer surrender charges. It is also true, and consumers need to be made aware, that there are also many products available with surrender periods of five, four, three and two years. In fact the overwhelming majority of fixed declared-rate annuities have less than 10-year surrender periods. It is reckless to categorize all fixed annuities as unwise choices for younger generations especially considering the flexibility in length of contract that are available in the marketplace today. In addition, all NAFA member companies follow the new NAIC surrender disclosure requirements and consumers must be shown the disclosures explaining the surrender period and charges before they purchase an annuity. Also, your readers should be told that when a new annuity policy is delivered to them, they may review the surrender charges again to make sure they understand and are completely satisfied. If they aren't, all annuity contracts offer a FREE LOOK PERIOD during which they may return the policy and receive a full refund of their initial payment.
These choices are important considerations when selecting a fixed annuity. Many individuals prefer the longer surrender periods when they are uncertain about when and if they will need additional income. One of the most desirable insurance features of a fixed deferred annuity is that it guarantees an income stream you cannot outlive and allows you to put off (defer) the decision until some date in the future. The flexibility of the contract also allows you to move up the date when you want to begin to receive your income payments. You do not need to know that date today and the longer deferred annuity gives you peace of mind that you may exercise your guaranteed income benefit, but you don't have to – ever. Also, in exchange for the longer surrender period you can receive even higher interest than the interest paid in shorter surrender annuities. Some come with additional interest bonuses. On the maturity date required by state law (95 or older in most states) you may choose the full value of the contract in a lump sum or over time.
If you would like to write a second column on Fixed Annuities: The Other Fine Print, please feel free to call us and we will provide you with the necessary resources and information to ensure your readers understand all the things they should consider when buying a fixed annuity. Please call us at 888-884-NAFA or email kim@nafa.us. Also consumers are encouraged to visit www.annuiityinfo.com for more information and tips about buying fixed annuities.
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