Displaying items by tag: fixed annuities

(New York)

If there is a product that looks like it has a great ten-year horizon ahead of it, it might just be annuities. Just like eSports and electric vehicles seem to have a great demographic trend behind them, annuities will ride a wave of retirees into great success. However, that is not the only tailwind. The other is ultra-low interest rates, which have completely upended the role of bonds in a portfolio. They yield very little and have a great deal of risk. Understanding that, annuities have a very interesting role to play, as between the three major types: fixed, variable, and fixed index, they offer a range of options that can help replace bonds. Fixed annuities offer set guaranteed income, variable give banded income but offer some upside, and fixed index work as a hybrid between the two.

FINSUM: Annuities have gotten a bad reputation over the years because of some high fees and bad actors, but product suites have gotten better. They can really round out a client’s need for low volatility income.

(New York)

With interest rates so low there has been increasing interest in the role that annuities can play for those near or entering retirement. Bonds just aren’t playing the dual roles of safe haven and income source that they once did, and annuities are a naturally inheritor of that role for the foreseeable future. However, one thing that many are not clear about is how well fixed and variable annuities can work together. While fixed annuities offer guaranteed income, they are susceptible to inflation. Accordingly, many retirees might also want to have some upside that will allow their payouts to move higher. Enter variable annuities, which can offer enhanced income in up markets (but do risk lower payments in down markets).

FINSUM: Fixed and variable annuities work well as a pair. The portion invested in fixed offers guaranteed income, while the variable portion offers upside potential.

(New York)

The market has been extremely volatile this year and that has put many investors on edge, especially those nearing retirement who need to rely on their portfolios for regular income. Treasury yields have gotten so low that they are not a good source of yield. So where to turn? One option is fixed annuities, also called multi-year guaranteed annuities. In contrast to fixed-index annuities or equity-index annuities, the return on MYGAs is not tied to an index. Such MYGAs are currently offering spreads of as much as 300 bp over Treasuries, representing a strong opportunity for those who need guaranteed income.

FINSUM: Two things to bear in mind when considering these—they are generally quite illiquid as the money is “locked up”, and secondly, they do have default risk but often can have limited losses because of state guaranty associations.

(New York)

Advisors who are receiving inbound interest from clients about annuities might be interested in browsing a list of top recent providers. AIG, John Hancock, Lincoln Financial Group, Pacific Life, and Prudential regularly figure among the top players in the space. That said, data from 2019 has highlighted a new leader of the back—Jackson. “Jackson has dominated the variable annuity market for the past 7 years. In 2019, Jackson diversified its annuity sales to focus on growing its fixed annuity market share, which propelled its overall growth in 2019”, according to an annuities strategist.

FINSUM: One thing that is interesting is that the annuities industry is actually getting a little less consolidated (which stands in contrast to other product sectors, e.g. ETFs). The top three providers only account for 22% market share, down from 25% in 2014.

(New York)

A lot of advisors and investors are looking at fixed annuities right now, especially fixed index annuities. Such products offer principal protection and lifetime income, both of which are in short supply given current market conditions. It is important to remember though, that FIAs were only built to beat CD returns by a small margin, they are not supposed to have huge upside. With that said, there are ways to maximize returns, such as using income riders. These are extra features which provide higher lifetime income payments are a future date of your choice. They need to be added when you buy the annuity, not later, and do have annual fees.

FINSUM: Income riders are most popular with fixed index annuities, but do show up in some variable annuities and SPIAs.