The Other Other Side of Annuities


I just read the article “Annuities and the Other Side of the Retirement Savings Coin” (Jan. 09, page 36). The article discusses many of the benefits of annuities but does not seem to discuss in much detail the risks of purchasing an annuity, such as the risk of the insurance company becoming insolvent and the value of their “guarantee.” My father recently told me that he invested all of his retirement into an annuity with a “guaranteed” return and therefore was not concerned about the recent downturn in the market. He did not disclose the name of the insurance company that sold him the annuity. What concerns me is that I do not know the financial health of the insurance company that is backing up the annuity. Although some of the principal may be guaranteed as required by various state laws, I fear that a significant portion of his retirement nest egg could be at risk of loss should the insurance company become insolvent.

Mark A. Norman, CPA
Grand Rapids, Mich.

Authors’ reply: If Mr. Norman’s father purchased a fixed annuity, either immediate or deferred, the entire amount is backed by the insurance company’s general assets and is at risk, as he fears. He should investigate the ratings and claims-paying ability of the company (start with the A.M. Best Co. rating service) and any state insurance guarantee program in the state where his father lives. Insurance companies are regulated by states, and fortunately, many were not deregulated to the extent of much of the rest of the financial services industry. If, however, his father purchased a variable annuity (which, from the brief description, seems to be the case), the underlying investments of the variable annuity funds are not subject to the solvency of the insurance company. The fate of the insurance company will affect only the guarantees offered in the contract (the “living benefits”) and not the underlying funds.

Richard E. Marcus, CPA, CFP, and
Glen Janken, CFP, CLU
Los Angeles


Year-end tax planning and what’s new for 2016

Practitioners need to consider several tax planning opportunities to review with their clients before the end of the year. This report offers strategies for individuals and businesses, as well as recent federal tax law changes affecting this year’s tax returns.


News quiz: Retirement planning, tax practice, and fraud risk

Recent reports focused on a survey that gauges the worries about retirement among CPA financial planners’ clients, a suit that affects tax practitioners, and a guide that offers advice on fraud risk. See how much you know with this short quiz.


Bolster your data defenses

As you weather the dog days of summer, it’s a good time to make sure your cybersecurity structure can stand up to the heat of external and internal threats. Here are six steps to help shore up your systems.