Displaying items by tag: annuities

In an article for ThinkAdvisor, Sudipto Bannerjee, Ph.D. and the VP of Retirement Thought Leadership at T. Rowe Price, distilled some advice for advisors on how to educate clients about annuities. 

Recent research indicates that 70% of retirees are managing their money with the intention to preserve assets. While most of the discussion is about saving or investing, more important is how retirees will choose to spend their savings.

Given this reality, annuities offer major advantages since it comes with longevity protection, tax advantages, and potentially even income guarantees. It also reduces the risk that retirees will exhaust their savings. 

The research indicates that retirees prioritize asset presentation, and it has a major impact on well-being. And, they cite running out of money as their biggest fear. Thus, annuities can be useful to accomplish both objectives. 

We can see how this plays out by comparing the performance of retirees who have a pension against those that don’t. After 18 years of retirement, retirees with a pension only saw a 4% drop in assets, while those without a pension saw a 34% reduction in total assets. 

Finsum: Annuities are a great option for investors especially since a guaranteed income leads to increased preservation of assets. 

Given increasing volatility in financial markets, it’s not surprising that many investors are feeling nervous. According to Corebridge President Bryan Pinsky, annuities are one option for investors to reduce the volatility in their portfolios and prevent them from making rash decisions. His perspective was shared in an article by Allison Bell for ThinkAdvisor.

Corebridge Financial is ranked third in terms of individual annuity sales at $20 billion and was previously known as AIG Life & Retirement. He believes that negative emotions during volatile markets often lead investors to sell low and buy high. 

In terms of his thoughts on the current market, he said that the doubling in the yield of the 10-year Treasury note in 2022 was historically unprecedented. It’s also resulted in annuities paying out higher rates which has led to a surge in demand for these products. 

He says that the elevated market volatility since the end of 2021 have validated the use case for annuities. He also doesn’t believe it’s too late to seek downside protection and that annuities can be an integral part of any retirement portfolio with recommended allocations between 10% and 30%.

Finsum: According to Corebridge’s Bryan Pinsky, market volatility has proven why annuities are an essential part of any investors’ financial plan. Additionally, he believes that buying conditions for annuities remain attractive.

While rising interest rates might make things difficult for life insurance company risk managers, they were great for individual fixed annuity sales in the fourth quarter of 2022. According to new issuer survey data from Wink, overall sales of all types of deferred contracts increased 30% between the fourth quarter of 2021 and the fourth quarter of 2022, to $79 billion. Sales of three types of products classified as fixed, traditional fixed annuities, non-variable indexed annuities, and multi-year guaranteed annuity (MYGA) contracts — climbed 102%, to $58 billion. Sheryl Moore, Wink’s CEO, told ThinkAdvisor that MYGA contracts in particular benefited both from increases in crediting rates and consumers’ fear of market volatility. She noted, “Eighteen percent of insurance companies offering MYGAs experienced at least triple-digit sales increases over the prior quarter.” In fact, MYGA contracts jumped 217% to $36 billion, non-variable indexed annuities rose 28% to $22 billion, and traditional fixed annuities increased 18% to $575 million. Wink based the latest annuity sales figures on data from 18 index-linked variable annuity issuers, 48 variable annuity issuers, 51 traditional fixed annuity issuers, and 85 multi-year guaranteed annuity (MYGA) issuers.

Finsum:According to new issuer survey data from Wink, rising interest rates helped sales of all types of deferred contracts rise 30% year over year in the fourth quarter of 2022, to $79 billion.

According to a new report from LIMRA, the demand for annuities within employer-sponsored retirement plans will “grow exponentially” over the next two years. The insurance trade association noted in a press release that it anticipates “greater adoption of in-plan guarantees in late 2023 and 2024.” LIMRA noted that just 14% of defined-contribution plans currently offer annuities with income guarantees even though 70% of workers say they want some sort of guarantees that only annuities can offer in their retirement plans. The topic of annuities as an option in 401(k)s has been discussed for years. Supporters say that annuities offer benefits that workers want including guaranteed income. But detractors contend that annuities are too complicated for plan sponsors and employees to understand. In addition, if an annuity provider becomes bankrupt, employers could fear being liable under their fiduciary duty. So why does LIMRA anticipate the market exploding? Their press release mentions the SECURE Act 2.0, which President Biden signed into law at the end of last year as the reason. However, the first SECURE Act signed by President Trump in December 2019 may be the true driver of demand as it expanded safe harbor protections so that retirement plan sponsors could offer annuities without fear of being held legally responsible as part of their fiduciary obligations. It also allowed workers who change jobs to keep their annuity guarantees without incurring early surrender penalties.

Finsum:Insurance trade association LIMRA expects the demand for annuities in employer-sponsored retirement plans to grow exponentially due to the passage of the SECURE Act.

According to data from the insurance trade association Limra, annuity sales hit $310.6 billion in 2022, surpassing the prior annual record of $265 billion, set in 2008. That year the U.S. was in the midst of the Great Recession, while the S&P 500 index lost 57% from its peak. In 2022, the S&P 500 posted its largest loss since 2008, ending the year down 19.4%. Since annuities hedge risks such as market volatility, they became quite popular last year with investors. Annuities also benefited from the Fed raising interest rates, which created a better return on investment. Plus, U.S. bonds, which typically act as a safe haven for investors when stocks falter, suffered their worst year on record last year. This left very few options for savers looking for safety and a return. Investors were especially bullish on fixed-rate deferred annuities. Total sales of fixed-rate deferred annuities last year hit $112.1 billion, more than double the sales from 2021. They also broke the prior annual record from 2002, when investors bought $80.8 billion, according to Limra data. Indexed annuities also had a record year, with sales of $79.4 billion, an 8% increase on its 2019 record. However, variable annuities, which are generally tied to the stock market, saw annual sales of just $61.7 billion, the lowest since 1995.

Finsum: With a volatile stock market, rising interest rates, and the worst year on record for bonds, annuity sales had a record year, with fixed-rate deferred annuities and indexed annuities also posting annual sales records.