Your work isn’t done after you decide to add immediate annuities to your retirement portfolio. Immediate annuities can enhance your retirement. They provide fixed income that’s guaranteed for life. You can buy annuities with payments that increase with inflation if you want. We explained the advantages of annuities in our April 2009, August 2010, and June 2011 visits, to give three recent examples.
So, you’ve decided to buy one or more immediate annuities with part of your portfolio. It’s time to shop carefully and thoroughly. Annuity deals differ significantly among insurers. My studies over many years consistently show that even after restricting your choices to insurers with top safety ratings, annuity prices vary considerably. The monthly payouts of the best and worst deals among financially secure insurers usually vary by about 20%. That’s a 20% difference in your monthly income every month for the rest of your life.
This month I’m taking this study one step further. Let’s take a look at the different sources, or channels as they’re known in the business, from which you can buy an annuity. There are several sources for annuities, and they earn different commissions from the insurers or obtain different prices for their clients. In general, a higher volume agent or broker can negotiate a better price. That means you can buy the same annuity from the same insurer through different channels and receive different monthly income.
The best work I’ve seen on this was done by Kerry Pechter in the Retirement Income Journal, a subscription web site. Pechter checked prices at four online sites.
ImmediateAnnuities.com, a web site I’ve used and mentioned in the past, is an insurance broker that represents a large number of insurers. When you ask for a quote, you’ll receive data from a dozen or more insurers. Its price should be the same or similar to what you would pay through an individual agent or broker representing the same insurer.
IncomeSolutions.com is an institutional channel. It negotiates prices with insurers, and then it says it won’t mark those prices up by more than 2%. Standard commissions usually are 3% to 4% on immediate annuities. Many insurers don’t participate, and consumers have limited access. To buy from it, you must be a member of one of the pension plans that participate, have a Vanguard account, or use a fee-only advisor belonging to the National Association of Personal Financial Advisors.
Fidelity.com offers annuities from five major insurers and is a proxy for several mutual fund companies and discount brokers that offer limited immediate annuity options.
Cannex.com is a database firm available to financial professionals that obtains quotes from a wide range of insurers. It probably is the source with quotes from the highest number of insurers. It’s not available to consumers. Financial professionals can use it to determine benchmarks for an annuity and to locate the insurers with the best prices.
The study confirmed my previous finding, which is that within a sales channel the consumer needs to receive quotes from different insurers. Pechter found payouts from insurers within each source differed by at least 10%.
As expected, the study found the payouts also differed among the channels for annuities from the same insurer. For those who are interested, the highest payout in the survey was available from Pacific Life, but Pechter reported only payouts from insurers that participated in at least two of the channels. So, that doesn’t mean Pacific Life was the best quote overall.
The best prices were from IncomeSolutions.com. Its payouts from the same insurer were higher than those from other channels by from 4.36% to 2.14%, depending on the insurer. Remember this is a comparison of the payout a consumer would receive from the same insurer by purchasing it through different channels. IncomeSolutions.com offers annuities from a limited number of insurers. Companies that offered annuities through each of the other channels but not IncomeSolutions.com include New York Life, John Hancock, MassMutual, and MetLife. But the site did offer the two annuities with the highest payouts among insurers who were available through at least two of the channels: Pacific Life and Integrity Life.
Next best prices were from Fidelity.com, but by a modest margin. This channel was the only to offer a quote from MassMutual and offered the same prices as Immediate-Annuities.com for New York Life and MetLife. It offered a 1.63% higher payout than ImmediateAnnuities.com from Principal, but not as good a payout as IncomeSolu-tions.com.
ImmediateAnnuities.com, as I said, provides the standard deal from each insurer, and its prices matched those quoted by Cannex.com. So it is providing the standard pricing with no additional markups or fees. The difference between this source and IncomeSolutions.com, as stated above, varied from 4.36% to 2.14%, depending on the insurer. The biggest difference of 4.36% was on the highest payout annuity from Pacific Life.
You have to look at more than price before deciding which channel to use. IncomeSolutions.com doesn’t provide much in the way of service and counseling, and neither does Fidelity.com. These two sites primarily are for those who either are using a fee-only advisor or who are comfortable making the choices and decisions themselves. ImmediateAnnuities.com offers the assistance of a commissioned agent to help you and also offers far more quotes than either of the other two. It’s also available to anyone with access to the Internet or a telephone, unlike the other two channels.
Finding the best price for an annuity isn’t valuable if you’re buying the wrong annuity. You first need to decide whether you want an immediate annuity. Other issues include whether you want a fixed or inflation-indexed annuity; whether it should cover only your life, the joint life of you and your spouse, or include a term of years guarantee; and how much of your portfolio to put in the annuity. You also need to decide whether you want to buy now when interest rates are low or wait a few years in the hope that interest rates and annuity payouts will be higher. After answering those questions, then be sure to shop around for annuities from one or more financially secure insurers that offer competitive payouts.
Log In
Forgot Password
Search