Press Room
Press Responses

July 30, 1999

Mr. Paul E. Steiger
Managing Editor
The Wall Street Journal
200 Liberty Street
New York, NY 10281

Dear Mr. Steiger:

Jonathan Clements' "Getting Going" column, titled, "When the Street's Wisdom Doesn't Work," in The Wall Street Journal's July 20, 1999 edition errs in concluding that variable annuities don't make sense for investors in their 50s and early 60s. The real issue is suitability. Variable annuities can be appropriate investments for older investors, depending on their circumstances. With people living longer and longer, even older investors can benefit from the tax deferral and insurance features of the product.

The apparent basis for the article's conclusion is the equally erroneous assertion that investors would need to hold a variable annuity for 15 years to have the same amount as they would with a typical mutual fund. This assertion is not supported by a 1999 study prepared by PricewaterhouseCoopers, which compared mutual funds to variable annuities after the most recent change in the capital gains tax law.

The study reports that for the average of all types of variable annuity and mutual fund investments and under a range of payout options, the longest break-even holding period is less than 5.3 years. This figure is substantially less than the 15 years claimed in the article. The study also reports that for the average variable annuity and mutual fund investment, based on historical investment performance of funds for an 11-year period (1987-1997), the after-tax payouts funded by variable annuity investments are substantially larger than mutual fund investments for holding periods as short as 10 years.

Of course, the fact that variable annuities can be attractive investments for older investors is only half of the story. Variable annuities also provide important insurance guarantees.

For example, variable annuities provide beneficiary protection in the form of a death benefit that many investors regard as vitally important. The standard benefit provided by variable annuities guarantees that if the policyholder dies while still saving for retirement, his or her beneficiaries will receive the greater of the amount of money that was invested or the policy's value at the time of death. Many variable annuities go even further and offer "stepped up" benefits that lock in investment gains every few years or even every year. This benefit gives policyholders the confidence to invest in the stock market, which is important in order to keep pace with inflation, since they know that their family will be protected against financial loss in the event of an untimely death.

Variable annuities also provide payout options that can protect individuals from outliving their assets by guaranteeing them payments that will continue for the rest of their life, no matter how long that is. And, since variable annuities allow policyholders to base the amount of their annuity payments on the investment experience of an underlying equity fund, they are an ideal choice as a hedge against inflation. Even with modest investment returns, variable annuity payments can increase over the years, for as long as one lives.

No product is perfect for everyone, and investors should carefully consider where to invest based on their individual needs and circumstances. Investors should identify their financial goals, time horizon and what features are important to them. For example, an older investor desiring maximum flexibility might select a variable annuity with no surrender charge. Thoughtful consideration of all relevant factors has led millions of Americans to choose variable annuities for their retirement planning.

Sincerely,

Mark J. Mackey
President and CEO
National Assn. for Variable Annuities (NAVA)
Reston, VA