A Hot Retirement Investment Loses Its Allure

Companies did not over-promise on the returns in variable annuities. Companies UNDER-PRICED their riders - GMIB, GMWB, GMAB - in order to attract product sales.

Since the downturn of 2008, lifetime benefit riders are either extinct, or are much higher in cost than before 2008. These riders, along with sub-account management fees, and the cost of the annuities themselves... have risen the cost of the contract to an easy 3.5% each year. Also, many carriers required that you use their portfolio models in order to use the riders. If you didn't like the asset allocation, you either changed to a different risk tolerance, or did a custom allocation and gave up the rider.

In short, it's a way for insurance companies to eat away at your cash to fund a lifetime guarantee rider... without annuitizing. These fees are charged regardless of market movements. Insurance companies also reserve the right to increase the cost of the rider even higher.

That's the argument against variable annuities today.

Fixed- and Fixed indexed annuities don't have the same fees and costs built into them that erode against the underlying cash values.
 
Does this mean agents and brokers should avoid getting into annuities in favor of other products and financial instruments?

There is a big difference between variable annuities and other annuities.
Variable Annuities automatically have fees that are directly deducted from your account value.

Most agents who sell Variable Annuities do not sell Fixed Annuities.
And most Fixed Annuity agents do not sell VAs.

Imo the VA market is slowly dying. And there are better options among IAs.
 
Pricing of the income rider doesn't have as big of an effect as you might think. Income riders on the VA side cannot, actuarially speaking, offer as big of "guaranteed" benefits because of account value uncertainty. When we design annuity income riders there is a point where more fee doesn't mean more profit for the carrier or higher income for the client.
 
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