Almost one-fifth of investors cited tax-deferred growth as the main reason for purchasing an annuity according to an Insured Retirement Institute (IRI) study, "Tax Policy and Boomer Retirement Saving Behaviors."
The government was able to take the last exit before the fiscal cliff in January but that stop-gap measure has not done much for our long-term fiscal health, according to a Congressional Budget Office (CBO) study. The CBO recently projected that by 2023, if the current laws remain unchanged, debt will equal 77 percent of our GDP.
The crisis at the next exit — the $85 billion in automatic domestic and defense spending cuts known as the Sequester — was not avoided and even with Washington reaching a new low as far as productivity is concerned, there will eventually be some type of agreement that involves both increases in revenue and reductions in spending.
With some members of Congress absolutely adamant that tax rates cannot go up any more for individuals, unconventional ideas have been floated about raising revenue including the vague solution of tax reform. Often interpreted to mean the closing of loopholes and tax havens, tax reform can also mean ending the tax deferral treatment of retirement savings vehicles such as annuities.
If the tax-favored status of annuities becomes the victim of Washington's intransigence, the impact will be severe for both the industry and the consumers they serve. With droves of baby boomers expected to retire in the near future a contributing factor to public spending, the CBO said, "Deficits are projected to increase later in the coming decade because of pressures of an aging population, rising health care costs, an expansion of federal subsidies for health insurance, and growing interest payments on the federal debt." Logic would dictate that taking away an attractive incentive for these very same individuals to save for retirement would be counter-productive. However, the notion is still being tossed around.
