Another Annuity Exit

The Fed’s zero interest rate policy and some other factors have been hard on insurers, especially those who sell annuities. They can’t promise the guaranteed income they used to when short-term interest rates are near zero and long-term rates are less than 4%. As a result, a number of firms have exited the business or curtailed the annuities they sell.

The latest change is Hartford Financial is exiting the annuity business, looking to sell its life insurance business, and focusing on property and casualty insurance.

The problems for insurers are a significant quandary for those in or approaching retirement. Economists and many financial planners encourage people to buy annuities with at least a portion of their retirement funds. I’ve been a big fan of immediate annuities for many in retirement. But by doing that today, you lock in record low yields. The shrinkage of insurers offering annuities makes it more difficult to shop around and find a good payout from a financially-solid insurer. My advice for many people at this point is to target annuities for a portion of your retirement assets but delay the purchase until interest rates are higher and the annuity market is healthier. Invest the amount targeted for annuities in relatively safe assets, such as high-yield corporate bonds, or in a tactical investment strategy that invests with a margin of safety and automatically keeps losses small.