Displaying items by tag: annuities

(New York)

The annuities business has long been “plagued’ by commissions. High fees paid out to sales people had a multi-part effect that hurt the industry’s reputation. On the one hand it made the products look less competitive, and on the other it led to some bad behaviors among brokers. However, as the industry has been changing, so have the fees structures, with commission-free annuities now an important fixture of the market.

FINSUM: DPL Financial specializes in providing commission free annuities from top providers so that RIAs can now sell annuities.

(New York)

There are a number of forces propelling annuities forward at the moment. Not only is their component of tax deferral getting more and more valuable given the new administration’s tax plans, but the need and desire to lock-in guaranteed income has grown over the last year. The single biggest force, however, is the US demographic trend. An astonishing 10,000 people per day are turning 65, and 16.5% of the population is now 65 or older. By 2030 all Baby Boomers will be over 65. That means this gigantic cohort is moving out of their wealth accumulating years and into their drawdown years. Many need guaranteed income.

FINSUM: A lot of advisors have an automatically negative reaction to annuities, but the market has improved a great deal in recent years, and for any clients they are a good option.

(New York)

Not a lot of people think about the tax benefits of annuities. This is partly because 401(k)s are also a key retirement product and get most of the “tax-deferred” attention, and partly because annuities just aren’t all that well understood. But what they allow is the tax-free accumulation of interest and gains over time. This feature is growing increasingly popular, especially this year, as tax rates look likely to rise under the new administration/Congress.

FINSUM: This is just one of several reason why annuities are being seen as more valuable, but it is certainly a good one as taxes even on middle class Americans looks likely to rise.

(New York)

Retirement has never been so insecure. Part of the appeal of annuities has been as a strategy to offset the decline in pensions. Yet, if you dig deeper there is another good utility for annuities that some retirees and pre-retirees are using: as a bridge to getting social security. Many lower income retirees hit a wall where they only have tens of thousands to low hundreds of thousands of dollars when they turn 60. The issue is that if the claim Social Security early, they can grossly lower their income versus waiting a few years. Given that the average 60 year-old male right now is expected to live to 88, the difference of $500 a month really adds up. Accordingly, in this situation an annuity—such as an immediate annuity—can work very well, as it buys time for retirees to defer taking Social Security.

FINSUM: This strategy can make a ton of sense, but it takes some convincing as most retirees don’t want to part with their money even if they know it will give them more security.

(New York)

Data from 2020 is in and it is clear: annuities are increasingly popular among advisors, and we mean that in the strictest sense of “advisors”. Annuities sales have not just grown with broker-dealers, but also with RIAs. For many years RIAs shunned annuities, but recently two major changes have made RIAs warm to them. Firstly, annuities compensation has become more aligned with RIA pay models, and secondly, with so many clients retiring in a period of high volatility, there is a greater need than ever before. According to David Lau, CEO of DPL Financial, “RIAs historically have used mostly investment-only variable annuities with the occasional single-premium immediate annuity mixed in, and that is because annuities until recently haven’t been built to fit into their business model. He continued “One of the things that’s misunderstood about annuities is that in a low-interest-rate environment, it’s something you may not want to consider … In today’s market with interest rates where they are, it is about 41% more expensive to fund retirement income using a bond portfolio than it is using an annuity.”

FINSUM: That last quote about the affordability of annuities is a really key point. Annuities can play an important role in a portfolio more cheaply than most instruments right now, and do so with less risk.