Shopping For an Annuity On-Line
in an annuity, possibly combined with a HECM reverse
mortgage, can make a lot of sense to a retiree, as I noted
in How Retirees Can Avoid
Running Out of Money: The Role of Longevity Annuities. Retirees planning to draw down
financial assets over their remaining life, who also have
equity in their primary residence, could use a credit line
on a HECM reverse mortgage to pay for a longevity annuity –
one that does not begin payments until some specified time
in the future but runs until the annuitant dies. The
longevity annuity would increase monthly cash flow,
eliminate the risk of running out of assets to liquidate, or
both. Retirees dependent on monthly pension income could
supplement it by either drawing a tenure annuity under the
HECM, which runs until the owner dies or moves out of the
home permanently, or by drawing a lump sum under a HECM
credit line and using it to purchase an immediate annuity –
one that begins monthly payments immediately and runs until
the annuitant dies.
But annuities, like HECM reverse mortgages are very
complicated instruments, which poses the danger of
over-charges and, even worse, misinformation leading to bad
choices by the retiree. This raises the question of whether
purchasing an annuity on-line is a way to avoid these risks.
This article is directed at that question. I have no
financial interest in any annuity sites.
Criteria For Evaluating
Web sites that improve a market from a consumer perspective
do three fundamental things. First and foremost, such sites
provide competitive pricing, which means that they collect
complete price data from multiple service providers, and
organize it in ways that allow consumers to find the best
deal for the particular option they want. To do this
effectively, the prices shown must be live, fully adjusted
for variations in the product or service, and inclusive of
all charges made by the vendor. This allows the consumer to
make apples-to-apples comparisons of the prices of different
vendors. This is what I did in creating a home mortgage and
reverse mortgage site, and it was the most important feature
I looked for in evaluating annuity sites.
In addition, a market-improving site informs users whether
or not they are likely to benefit from the product or
service being sold. The more exotic and complex the product,
the greater the need for useful information regarding the
type of users who would benefit from it.
Finally, a market-improving site provides useful information
on which specific options of those being offered are most
likely to meet the consumer’s needs. There are many types of
annuities just as there are many types of mortgages, and the
useful site provides information a consumer can use to help
make the right selection.
General Purpose Annuity Sites
Among the web sites I looked at
that offered price quotes from multiple insurance companies
on a wide variety of annuity types, the standout was
For the transaction I defined for them, they gave me the
monthly income that would be paid by each of 9 companies,
and the credit ratings of each company from each of 3 credit
rating agencies. They also showed me important differences
in the contracts used by the 9 companies, but only in very
summary form, raising questions in my mind for which no
answers were provided on-line. I would have appreciated more
detail on this important topic, but the site prefers to
counsel users one-on-one. Presumably for the same reason,
the site does not attempt to match the diverse needs of
consumers with the wide range of annuity types, or with
options within types.
A Specialized Longevity Annuity
is a relatively new
site focused strictly on longevity annuities, with
particular emphasis on “qualified longevity annuity
contracts” or QLACs. These are contracts that when placed in
a tax-deferred IRA or 401(K) account, are exempt from the
required minimum distribution rule that disbursements
subject to tax must begin from the fund starting at age 70
½. Under a Treasury ruling in 2014, income from QLACs does
not have to be drawn (and taxes paid) until age 85.
Individuals can invest in QLACs up to $125,000 or 25% of
total account value, whichever is less.
Abaris meets all three of the criteria stipulated above for
improving the annuity market. It provides competitive
pricing by the 7 insurers that participate on its site.
Furthermore, instead of just warning users about contractual
differences between the insurers, it allows users to set the
contractual features so that they are uniform for all the
quotes. In addition, Abaris provides a rough-cut listing of
consumer features that “Might Be Right For a QLAC”.
While this site still has a lot of rough edges, the basic
design is analytically solid and consumer friendly.