Displaying items by tag: annuities

U.S. annuity sales remained robust in 2023, but life insurers struggled to grow their share of the retirement asset market. Annuity reserves held by life insurers rose 8.9% to $4.2 trillion, slightly lagging the 9% growth rate for total retirement assets. 

Employer-sponsored pension and retirement plans saw a 10.3% increase, reaching $13 trillion, while individual retirement account (IRA) assets grew 13.4% to $13.6 trillion. Annuities maintained a 9.3% share of total retirement assets, unchanged from 2022, despite record sales and strong investment returns.

 IRA assets allocated to annuities grew 9.6% to $614 billion, but their share within IRAs declined to 4.5% due to even greater growth in mutual funds and other investments. 

Finsum: Overall, we believe annuities will continue to play a stable yet relatively modest role in the broader retirement landscape.

Category: Annuities

Tags: annuities, fixed annuities, variable annuities

Annuities in IRAs can provide surprising benefits for required minimum distributions (RMDs), particularly with fixed index annuities (FIAs) or variable annuities (VAs). 

While annuities often draw criticism for fees and opaque structures, they can sometimes be the best tool for specific retirement planning needs. FIAs, despite their bond-like returns with added stock beta, can offer secure lifetime income to meet critical retirement cash flow needs. 

When paired with goals-based planning, annuities excel in providing inflation-hedged, lifetime income that’s challenging to replicate with other investments. For flexible retirement expenses and longevity protection, the mortality pooling aspect of annuities often delivers payouts surpassing self-built solutions. 

Finsum: While not without flaws, annuities can play a crucial role in comprehensive retirement planning strategies.

Annuities have long been seen as one of the financial world’s most perplexing instruments, puzzling both retirees and economists alike. While economic models suggest that annuities should be a cornerstone of retirement planning due to their ability to provide lifelong income and protect against outliving savings, actual adoption rates have historically been low. 

Recently, however, there has been a notable rise in annuity sales, particularly for fixed products, which offer guaranteed returns and shield investors from market volatility. This shift may stem from concerns over Social Security’s future, the allure of secure income in uncertain times, and a growing desire among retirees to balance spending confidence with preserving wealth. 

Over time, the annuity landscape has expanded into a spectrum of offerings, including fixed, variable, and hybrid products, tailored to meet varying financial goals and preferences. 

Finsum: As these products gain prominence, they demand a deeper understanding from advisors guiding clients through estate and retirement planning.

A variable annuity offers the potential for investment growth along with tax deferral, but at a higher cost compared to fixed annuities. With variable annuities, you can invest in subaccounts like mutual funds, and when ready, convert the balance into income payments. 

While the returns and income depend on investment performance, many insurers guarantee a minimum payout. However, these annuities often come with high fees and restrictions on early withdrawals. The best variable annuities have low fees, flexible withdrawal options, income guarantees, and are backed by financially strong companies. Here are three of the best options in the current market: 

• Lincoln Financials’ American Legacy Target Date Annuity, Annual Fee 0.10% to 0.90%
• Pacific Life’s Pacific Odyssey Variable Annuity, Annual Fee 0.30%
• RiverSource RAVA Vista Variable Annuity, Annual Fee 1.00%

Finsum: There is currently more value in annuities than there was a decade ago due to the risk levels compared to bond markets and the return profile. 

Variable annuities aren't as directly affected by interest rate cuts because their performance is tied to market-based investments, not interest rate fluctuations. When rates drop, however, investors may shift toward variable annuities to seek higher returns, since fixed-rate products offer lower payouts in a declining rate environment. 

This shift happens because variable annuities can capitalize on market growth, unlike fixed options that are more constrained by interest rates. Despite the potential for higher returns, variable annuities are often complex, costly, and come with greater risks. 

With interest rates recently being high, many investors favored fixed annuities, but lower rates could make variable products more attractive again. Ultimately, investors need to weigh the risks and rewards carefully before deciding.

Finsum: It’s important to also think about how interest rates affect the underlying products of annuities; this gives true insight into the viability of those products.