The Politics of Annuities
The current administration, tempted by the trillions of dollars held in tax-deferred annuities, is slowly attempting one of the biggest asset grabs in US history…and it’s a shame that deserves action, writes Stan Haithcock of StantheAnnuityMan.com.
With everything that is going on in the world right now, annuities have somehow entered into the national political discussion.
Just in the past month, the Obama administration has recommended that Lifetime Income Annuity options should be offered within retirement plans (such as 401(k)s and defined benefit plans) to provide a lifetime income stream.
A subdivision of our company, Stan The Annuity Man®, has already been providing this type of service to plan administrators for their participants. So when I saw this ringing endorsement from the current administration for people to consider adding a lifetime income annuity to provide sustainable income, I was all for it.
The fact is that most people need additional lifetime income. Annuities are the only product that offers this type of lifetime “transfer of risk” payment.
Then, a few days later, the Obama administration floated a political “trial balloon” calling for a study to see if the tax-deferred status of annuities should be altered or eliminated. What? First, the Obama administration want people to have lifetime income annuities…and then they are questioning the benefits of annuity tax deferral at the same time.
On the surface, this seems irrational and misguided. However, when you look closer, this is a extremely calculated political move. Let’s dig further.
When Social Security payments were put in plan decades ago, it was not supposed to represent all of a person’s retirement income. It was designed to be a supplement to pensions and other investment income. We all know that the majority of Americans receiving Social Security payments now rely on Social Security as their primary income source.
Throwing both parties aside, we all know that Social Security in its current form is financially unsustainable. The numbers don’t lie. Politicians know that people are living longer, and with over 10,000 baby boomers retiring every day, there will have to be additional lifetime income sources to compliment (and save) Social Security.
I am sure that the Obama administration thinks that if Lifetime Income Annuity choices are offered and chosen, then the future political pressure on Social Security will lessen. Real changes can then be made to the program to sustain it for the long term. That’s my take on why the administration, all of a sudden, loves lifetime income annuities.
However, if you a true conspiracy theorist, then this is nothing more than a gift to AARP—which is one of the largest (if not the largest) seller of lifetime income annuities in the country—as well as Democrat-leaning/large money-giving insurance companies that will benefit from selling these annuities. That’s my “Annuity Conspiracy Theory.”
Lifetime income annuities are great for the consumer/voter, but in the process some of the biggest supporters of the current administration get “taken care of.” Remember, always follow the money!
As for the recent attack on the tax-deferred status of annuities, this is a predictable move for a government and administration that is addicted to spending and looking for large sources to go after for more money to spend.
Currently, there are over $3 trillion held in deferred annuities. That’s $3 trillion that politicians would love to get their hands on, and we all know it. Politicians understand that they currently can’t go and get all of that money, but they can start attacking it from a “class envy” strategy and chipping away at it from a tax standpoint. I believe that is what we might see with the $3 trillion currently held in deferred annuities.
Predictably, the insurance companies (and their lobbyists) are going to fight this to the death…and “remind” the current administration that insurers are a very large holder and buyer of government debt (Treasuries, etc.), as well as very large donors to the political system. I’m sure that congressmen/congresswomen from Connecticut, Iowa, Minnesota (and the other states where insurance companies are headquartered) will be leaned on heavily to roadblock this new type of wealth redistribution.
My prediction is that the tax deferral status of annuities will remain untouched…for now. But politicians will return to this “asset grab” again in the near future. This was nothing more than a trial balloon so that they could run polls to see where the public stands on this issue…and to strategize their future attacks.
As a side note, there are a few states (like California and Nevada) that currently have implemented a “premium tax” on annuities when you decide to turn on your lifetime income stream. So this attack on annuities is not new, and is not going away. My advice is to call your representative and tell them to keep their greedy little hands off your annuity!
Originally published by MoneyShow.com – 2.24.2012 – http://www.moneyshow.com/investing/article/1/GURU-26745/The-Politics-of-Annuities/