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Annuity Alert

Variable annuities with special income guarantees (paid for by hefty fees) have been actively sold in retirement meccas and Sun City style communities across the US, including here in Bluffton. After the shock of the recession in 2008, many investors looked for something that would promise at least a modest return and a guaranteed future income benefit.  Now it seems, the insurance companies that offered these guarantees are looking for an early exit.

Some annuity owners quickly caught on to the fact that they could put lots of money into funds with potentially high returns, but high risks as well. If returns were great, then the account grew dramatically; if things went south and the account value suffered, they would be guaranteed a reasonable future income; many insurance companies even promised that the income base would grow at a guaranteed rate each year, regardless of the value of the account.

Fewer people let these annuities lapse than the insurance companies anticipated; now they are on the hook for more than they bargained for, and as the fine print allows, they are doing something about it. Some insurance companies are offering to buy back the guaranteed portion of the annuity. Some are limiting the investment options of the contract owner; for instance, restricting the amount that can be allocated to stock, or mandating a minimum in bond or fixed funds.  Some companies are planning to revoke the special income guarantee features (that their clients have paid for) if the contract holder doesn’t respond to the notice.  If you have received any communication about your guaranteed income annuity, do not ignore it; it may have a significant impact on the future of your investment.  The Bedminster Group will be happy to review any annuity contract changes that you may be asked to accept.

While the Bedminster Group doesn’t generally recommend variable annuities, some of our clients own them, and, we recognize that these types of products can have a legitimate role in financial planning.

Just be sure to read the fine print… 

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