The Treasury Department just released a proposed set of regulations that could have a meaningful impact on the retirement income market in the U.S.

The Treasury’s guidance package builds on feedback received in response to the request for comments issued by the Labor and Treasury Departments last fall.

The proposed regulations appear to be squarely focused on longevity risk.  The basis for this concern—particularly as it pertains to the middle class—is summarized in the following chart:

Is there a sense of “swimming upstream” when trying to propagate goal-based investing--as described in your new book Risk Less and Prosper--among existing financial advisors? Conventional practices and economic incentives are so heavily skewed towards modern portfolio theory and growing assets under management. 

Canadian Finance Minister Jim Flaherty intends to propose legislation that bans banks from selling products that are similar to annuities.

Canadian law already prevents banks from selling annuity products.

Canadian finance officials are apparently concerned that the lines between annuity and banking products are increasingly blurred.

Bank products that are represented as lifetime cash flow vehicles presumably fall under this area of concern.

Canadian insurer Sun Life recently announced that it will exit the variable annuity and individual life insurance markets in the United States.

Continued equity market volatility has resulted in a variable annuity business that is plagued with uncertainty and higher costs.

Insurers such as Sun Life offer guarantees that are linked to the performance of underlying equity portfolios.  These guarantees are a liability for the insurance company, and equity market volatility contributes to the cost of these liabilities.

Annuity criticisms are a dime-a-dozen. 

The majority of financial advisors seem to have some issue with annuities, consumer perception is generally terrible and the financial media often appears to provide a reflection and reinforcement of prevailing sentiment.

There is a case to be made for “control of assets” as the common denominator for both the consumer and financial advisor perspectives.

Control of assets basically refers to the fact that annuities involve handing over money to an insurance company. 

Liquidity or lack thereof tends to be a major concern when it comes to annuities.

Many financial advisors and consumers are reluctant to use annuities because money allocated to annuity products tends to be tied-up and inaccessible for a period of time.  In other words, annuities lack liquidity or are “illiquid.”

In contrast, exchange traded funds (ETF) or shares of IBM stock are highly liquid as they can almost always be easily sold for cash.   

Investment News columnist Darla Mercado wrote an interesting piece of the difficulty of making meaningful comparisons among annuities and related retirement income products.

Mercado focuses on the challenges created by the lack of benchmarks in the retirement income industry.

Unlike the investment industry where benchmarking and transparency of product features are standard, lifetime income products are opaque and complex.

One way to evaluate a pension buyout involves determining what your future pension payments are worth today and then comparing that value to the buyout offer.

In other words, compare the lump sum pension buyout offer to what would you have to pay today to buy and annuity that locks-in a future stream of income that lasts for the rest of your life.

Metlife posted record variable annuity sales of $8.6 billion during the most recent quarter.  The VA sales record represents an 86 percent increase from the same period a year ago.

MetLife also announced that it will be lowering the returns offered on future variable annuity offerings in an effort to “re-price and improve the risk profile” of their product offerings.

Record low interest rates have made it difficult to sustain the richer product features contained in the current variable annuity offerings.

The Lifetime Income Disclosure Act introduced by the U.S. Senate last year would require 401k plan sponsors (employers) to provide plan participants (employees) with estimates of the amount of lifetime income that would be generated by their account balances.