Displaying items by tag: annuities

When evaluating an annuity, the advisor typically presents an illustration that outlines future values and any applicable surrender charges.

For a multi-year guaranteed annuity (MYGA), focusing solely on guaranteed values without much variability, except for potential market-value-adjustment penalties during the surrender period. On the other hand, a fixed indexed annuity features a more complex illustration, including guaranteed cash values and hypothetical future values based on favorable market performance. These annuities earn interest tied to changes in a market index like the S&P 500, offering the security of principal protection even if the index declines. However, the growth is limited, as you will only receive a portion of the index gains.

Understanding the specifics of these illustrations is vital, particularly distinguishing between the different types of value presented to clients.  

Finsum: Annuities can be complex but understanding your client’s interest can put them in the perfect vehicle. 

As more Americans retire without pensions, individual annuities are becoming crucial for financial security. Registered index-linked annuities (RILAs) have gained popularity, especially during the pandemic due to their downside protection and upside potential. 

In 2023, RILA sales reached $47 billion, a 15% increase from 2022, marking nine consecutive years of growth. This trend is expected to continue, with forecasts predicting sales of $52 billion in 2024 and $57 billion in 2025. 

RILAs, primarily sold through independent broker-dealers, are now outpacing traditional variable annuities in sales. The market, driven by innovation and new entrants, is poised for sustained growth.

Finsum: Independent broker dealers leading the pack is interesting and something to monitor during the annuity boom. 

The SEC has introduced new disclosure requirements and registration processes for registered index-linked annuities (RILAs) and registered market value adjustment (MVA) annuities in hopes of bringing clarity to the industry. The final rule mandates issuers of non-variable annuities to use Form N-4, updating the framework for these products. 

This change aims to help investors make informed decisions, as the market for these products has grown significantly, with RILA sales reaching $47.4 billion in 2023. The amendments include a summary prospectus framework and extend Rule 156 to non-variable annuity advertisements to prevent misleading materials. 

While SEC Commissioner Hester Peirce supports the general approach, she expressed concerns about potential biases and the need for creative disclosure techniques to enhance investor understanding. The amendments will take effect 60 days after publication in the Federal Register, with full compliance required by May 1, 2026.

Finsum: Annuities seem bogged down by more complexity, and this ruling could help the industry in the long run. 

Annuities, which base their returns on market interest rates, are currently more attractive due to the highest rates since 2001. Fixed annuities are offering higher guaranteed rates, and fixed index annuities now have higher possible caps for returns. 

Variable annuities are less affected by interest rate changes since their returns depend on mutual fund performance. Many annuities offer initial bonuses, which can offset surrender charges if switching from an older annuity with lower rates.

 Age also impacts how beneficial high interest rates are, with younger annuity holders potentially locking in higher lifetime income. However, potential future rate cuts add urgency, but it's essential to ensure annuities align with long-term financial goals to avoid penalties.

Finsum: Fixed annuities are in a very favorable position giving a 40 year high in interest rates. 

Deferred annuity sales increased by nearly 19% in the first quarter compared to the same period last year, according to Wink, Inc. This surge sets the stage for annuities to potentially exceed $400 billion in sales this year. 

Sheryl Moore, CEO of Wink, attributes this growth to the upcoming fiduciary rule implementation on September 23, which is driving a "fire-sale mentality" among producers and carriers. The new Retirement Security Rule will extend the Department of Labor's fiduciary duty to most annuity sales. 

Total first-quarter annuity sales, including immediate and deferred income annuities, reached $105.7 billion, with notable performers like Athene USA leading deferred annuity sales. Wink also noted strong performance in various annuity types, with record sales in indexed and structured annuities, indicating robust market activity ahead of regulatory changes.

Finsum: This spike could be sustained by falling interest rates that increase annuity demand.