Hand it over pal

Serenity now...

Here are the thoughts of one analyst about the administration's plan to force Americans into an annuity system. I will contemplate on it afterward.

Feb 03, 2010 - 02:46 AM

By: Bob_Chapman

There were annuities, in a report from the administration’s Middle Class Task Force that came out this week. They are among the tools the administration is promoting as it tries to give Americans a better shot at a more secure retirement.

At its simplest, an annuity is something you buy with a large pile of cash in exchange for a monthly check for the rest of your life.

If the biggest risk in retirement is running out of money, an annuity can help guarantee that you won’t. In effect, it allows you to buy the pension that your employer probably stopped offering, and it can help pick up where Social Security leaves off.

President Obama did not discuss annuities in his State of the Union message on Wednesday night, but the mere mention of them by the task force was enough to send executives at the insurance companies that sell the products into paroxysms of glee.

The announcement from the White House did make it clear the administration was looking to promote “annuities and other forms of guaranteed lifetime income.’’

That suggests the administration is open to other solutions, though there are not many others that are as simple as the basic fixed immediate annuity that delivers a regular check for life.

Still, all of this attention from the president is a stunning turn of events for a rather unloved product. Many consumers reflexively run in fear when salesmen turn up pitching high-cost and complex variable annuities, which evolved from their simpler siblings decades ago.

So what are these soon-to-be retirees so afraid of? And what makes the White House so sure it can change their minds?

Let’s start with the fears. Early on, the knock on annuities was that once you died, the money was gone.

The industry solved this by coming up with variations on the policy, allowing people to include a spouse in the annuity or guarantee that payouts to beneficiaries would last at least 10 or 20 years. This costs extra, of course.

Others worried about inflation, so now there are annuities whose payments rise a few percentage points each year or are pegged to the consumer price index. These cost extra, too.

Even if you get over all these mental hurdles, however, the hardest one may be the difficulty of seeing a big number suddenly turn small.

“It’s the wealth illusion, the sense that my 401(k) account balance is the largest wad of dollars I’ll ever see in my lifetime, and I feel pretty good about having that,’’ said J. Mark Iwry, senior adviser to the secretary and deputy assistant secretary for retirement and health policy for the Treasury Department. “Meanwhile, I feel pretty bad about the seemingly small amount of annuity income that large balance would purchase and about the prospect of handing it over to an entity that will keep it all if I’m hit by the proverbial bus after walking out of their office.’’

So how might the Obama administration solve this? It could get behind a Senate bill that would require retirement plan administrators to give account holders an annual estimate of what sort of annuity check their savings would buy.

Tax incentives could help, too. A House bill called for waiving 50 percent of the taxes on the first $10,000 in annuity payouts each year. “If this is behavior that the administration is trying to inspire, then it’s not that long of a leap to think that maybe they’ll start to promote some version of these bills,’’ said Craig Hemke, president of BuyaPension.com, which sells basic annuities.

Annuities won’t be right for everyone, and they’re not right for everything because it rarely makes sense to put all of your investment eggs in one basket.

That is all interesting and everything, all the stuff about whether Americans will like annuities. Here is the part you can't miss. Never take your eye off this ball. The administration has actually, including the shady backroom stuff, doubled the national debt that had accumulated in the last 233 years IN ONE YEAR -- DOUBLED. There are, as the Chinese government has been kind enough to point out, not enough US Dollars in the world to pay for our new debt. Very soon, without doing something new and drastic, the government will run out of lenders for their insane spending spree.

Their brilliant plan is to force you to hand over your retirement money in exchange for a promise of a tiny bit back each month. Let's review that. Social Security was supposed to be a legitimate system of Socialist-type forced savings (because we are too stupid to save for ourselves). In reality it quickly became a Ponzi scheme as Congress took the money that was accumulating and felt free to spend it every year. Every penny is gone, and now they want to raise the age while cutting benefits, and maybe even tax the benefits. That's like taxing tax.

So, the people who stole your Social Security that they forced you to pay want you to hand over your entire retirement account to them in exchange for a small IOU. Let's see, Medicare is broke. Medicaid is broke. The Post Office is broke. Social Security is broke. The FDIC is broke. Even the Treasury is broke. Your money will go down a rat hole, and you may never get anything in return. Simple as that. Strip away the pretty talk and it's like giving your life savings to a gambling addict while he's in Vegas.