Displaying items by tag: annuities

Sure the Fed is beginning to taper, and with that comes rising interest rates. However, for the end of 2021, it was the near-zero interest rates that pushed investors out of fixed-rate annuities, and into variable index annuities and RILAs. Fixed-rate annuity sales plummeted in the final quarter while the aforementioned variable products all grew by 10%. Sales in annuities grew by a staggering 16% in 2021, however, a lot of that growth was generated by a much lower 2020 due to the pandemic. Investors will look to shift back into fixed-rate products if rates begin to normalize or hit higher historical levels.

FINSUM: Look for fixed-rate annuities to make a come back in later 2022 because as interest rate hikes are coming and investors will capitalize on relatively higher real rates.

Income investors are flummoxed by the turbulent bond market and many are left wondering what to do. Sure dividend stocks might be an okay option but for those closer to retirement times are too turbulent to rely on them. Instead, rather than sinking your teeth into longer-term bonds with so much interest rate uncertainty, investors should ladder or stagger their fixed rate annuities. Sequencing can allow you to fight the current inflation with better yields than bonds and CDs with more security than equity markets. Additionally, laddering can allow you to be ready to pull out in case bond yields rise to provide more income and on top of that get in at a lower price.

FINSUM: Sure short-run annuities have less return than an ultra-long option but if interest rates pick up you won’t be hung out to dry.

Covid-19’s continued crisis and the growing number of new strands have put lots of pressure on bond markets which has spiked an interest in annuities because there is no yield in fixed income. However, ETFs are looking to capitalize on annuities growing popularity because a defined outcome ETFs offer a lot of the same advantages as annuities. Buffer or defined outcome ETFs use options to track indices which means that by buying a series of put options and selling a series of call options they cap and floor their earnings which means a smooth stable ride that is an alternative to bond markets and annuities as an equity hedge. They also have an advantage over annuities because they don’t have the hefty upfront costs annuities usually have.

FINSUM: This is a great product to hedge the S&P but it isn’t the guaranteed income an annuity provides.

Annuities have been criticized for their lack of a national advertising campaign that could really rally interest, but that will change in 2022. A large number of retirees should give companies enough desire to boost their annuities exposure. In addition to this many of the fundamental changes in regulation such as the secure act are paving the way for annuities to be introduced in new ways. Finally, the stock market has performed better than anyone could expect coming out of the pandemic, and bonds provided now yield and little security. Investors will need to protect their gains and retirement and expect big companies to pitch to these investors more frequently.

FINSUM: Protecting existing stock gains is a great argument for individuals to consider annuities in 2022.

The Biden administration has put a number of new policies that are affecting annuities, and while some of them may be unintentional a number of companies may be moving to offshore havens to escape the pressure. Annuity issuers are being acquired by private companies and then becoming nomadic firms that are mainly housing themselves in Bermuda. The current Build Back Better act will affect annuity and insurance contracts with updates to the base erosion and anti-abuse tax. Additionally, many annuity issuers aren’t positive that the variety of retirement vehicles that are offering annuities might not be so great moving forward. Finally, low yields in are tricky for annuity issuers because they rely on traditionally high yield debt to finance the pseudo insurance contracts.

FINSUM: Annuities are one of the oldest financial contracts, it’s bizarre how much new regulation is being sprung on them in 2021.