This piece is in response to a paper that my friend Wade Pfau was commissioned to write, by the Alliance for Lifetime Income.
August 23, 2023 by Sheryl J. Moore
I show grace to Wade not mentioning that inforce annuity rates can, and often do, change. This is a practice that typically occurs with products sold in the independent agent distribution. It is likely a little too “in the weeds” for Mr. Pfau.
I don’t agree with Allan Roth often, but he has a point that the “right of the insurance company to slash returns” on indexed annuities is a concern in retirement.
And while it is true that there are indexed annuities that guarantee their rates for the duration of the surrender charge period, they are few, compared to the overall market.
I DO take issue, however, that it isn’t mentioned that the caps on indexed annuities can also INCREASE after the first year. If options costs are conducive, there are companies improving rates on inforce annuity business. I have seen it, myself.
And while it is true that an insurance company COULD fail, the likelihood of the annuitant not receiving their funds in an insolvency has historically been very low.
I am only aware of five annuity companies that have failed since the 2008/2009 market collapse. By comparison, there have been 540 banks that have failed during the same period.
From what I understand, all of the annuitants with those five companies have been “made whole.” This article made it seem like purchasing annuities are risky though. -sjm