Variable Annuity

In contrast to a fixed annuity, the key features of a variable annuity can fluctuate (they are “variable”) during the accumulation period and during the payout phase. Also in contrast to a fixed annuity, the variable annuity contract holder assumes much of the investment risk. With a variable annuity, the insurance company provides the contract holder with the ability to determine how his or her premiums are invested. One investment option is a variable account which typically consists of equity, bond or money market mutual funds. The other option is the general account of a variable annuity which provides a guaranteed return. The contract holder decides how much risk or variability they want to tolerate by allocating premium payments among the general and variable accounts. The amount of money accumulated and the amount of income during the payout phase are determined by the returns of these accounts. With a variable annuity: 1) the money can go in as a single premium payment or a series of payments; 2) the money is invested at a variable or non guaranteed rate; 3) payments are variable and can begin immediately or at some future date.

Why Financial De-Risking May Leave Consumers at a Loss

The term de-risk has been appearing frequently in recent financial news. 

General Motors’ recent decision to offer lump-sum...

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Mark Warshawsky on the Retirement Income Market

Mark J. Warshawsky is Director of Retirement Research at Towers Watson.

Dr. Warshawsky served as assistant secretary for economic policy at the U.S. Treasury Department from 2004-2006 and he has held senior level economic research positions at the Federal Reserve Board, the Internal Revenue Service and...

3.87 Percent Inflation Increase for Penn Mutual Variable Annuity

The Penn Mutual Inflation Protector variable annuity was launched in November 2010. This variable annuity product incorporates a living benefit feature and is designed to provide owners with an income base that keeps pace with the rate of inflation. The income base of the Penn Mutual Inflation Protector increases based upon the greater of: The rate of inflation as measured by the consumer price index urban (CPI-U), or; Annual market performance. The inflation increases are capped at a maximum...
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Short-Term Focus has Adverse Impact on Retirement Income Product Development

Warren Buffett’s most recent shareholder letter focuses on the merits of productive assets such as equities in light of the current low interest rate environment and the potential for future inflation.

Buffett’s view is that although productive assets are variable and volatile, they are more likely to preserve future purchasing power than the fixed or currency-based alternatives.

Buffett’s advice would seem to provide a key...

Sun Life yet another Casualty of Equity Market Volatility

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...
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