Displaying items by tag: annuities

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. 

Traditionally, fixed income is where financial advisors look to reduce portfolio risk. This is no longer the case in the post-pandemic period, as the bond market has experienced major volatility, which is becoming the norm in a high-rate, high-inflation regime.

Given these conditions, investors may be better off with fixed index annuities (FIAs). Like bonds, FIAs produce income; however, a key difference is that FIAs guarantee an income stream for life as opposed to a fixed period. Another advantage of FIAs is that they have higher earnings potential than bonds, given that many are designed to earn interest based on the performance of an external index like the S&P 500. In contrast, fixed income has significantly underperformed over the last 5 years and failed to beat inflation.

Over long periods of time, costs matter when it comes to long-term investing. Most bond investments have fees that range between 0.5% and 2%. In contrast, FIAs tend to have much lower fees, on average. 

In terms of risk, FIA offers full protection of the principal investment. This means that it can be more effective than fixed income to hedge equities, especially in the current environment. Overall, FIAs can be more effective than fixed income, especially for investors who are in or nearing retirement. 

Finsum: Advisors should consider fixed indexed annuities (FIAs) as an alternative to fixed income, especially in the current environment. FIAs offer lower costs, more downside protection, and greater potential for appreciation.

Financial advisors frequently turn to bonds when managing retirement investment risk, as they are traditionally viewed as a reliable hedge against stock market fluctuations. However, recent research suggests caution, with a Bloomberg report revealing that the bond market has experienced significant volatility in recent years, and the traditional hedging with fixed income might be inadequate. 

To circumvent losses from bond volatility, fixed index annuities (FIAs) can serve as an effective alternative. FIAs generally carry lower risks compared to bonds but they can do so at a reduced price with a much higher potential upside. Unlike bonds, FIAs can guarantee a lifetime income, providing a unique form of security for retirement planning.

Interest earned from FIAs is based on an external market index, such as the S&P 500, allowing investors to benefit from market gains without the risk of market volatility. This makes FIAs an appealing option for achieving a balanced and secure retirement portfolio.

Finsum: This really comes down to investor preferences, but stock-bond correlation is increasing which should give investors reasons to consider annuities. 

The 4% rule has become conventional wisdom when it comes to managing finances during retirement. As millions of people enter retirement over the next decade, it may be time to revise this rule, given higher inflation and longer lifespans.

Social Security benefits are typically equivalent to 40% of a retiree’s income. According to TIAA, retirees should consider pairing the 4% rule with an annuity to generate higher levels of income during retirement. This means that a retiree would convert some portion of their savings into an annuity.

In the first year, this is likely to boost income by up to 32% compared to just using the 4% rule. It also leads to more predictable income and shields retirees from market risk. More predictability can also help with more effective financial planning, leading to a more enjoyable retirement. 

Treasury Inflation Protection Securities (TIPS) are another method to increase guaranteed income, especially with a ladder across different maturities. It also protects retirees against inflation. 

Overall, the 4% rule should be reconsidered, especially in this era. It leads to less spending flexibility and should be augmented with other sources of income. It also doesn’t account for retirees’ individual circumstances, such as tax rates, risk profiles, and cash flow needs. 

Finsum: TIAA believes that the 4% rule should be reconsidered, especially for those retiring now. Retirees may need more income and should consider annuities or TIPS.

The U.S. Treasury Department is seeking to curtail the use of bespoke life insurance policies and annuities by wealthy individuals and families to minimize their tax obligations. The proposal is called "Limit Tax Benefits for Private Placement Life Insurance and Similar Contracts" is part of the fiscal year 2025 "Greenbook"

This proposal aims to reduce the tax advantages associated with private placement life insurance, private placement annuities, and certain variable life and annuity contracts. While few Greenbook proposals are enacted into law swiftly, their inclusion can significantly influence financial services lobbyists and advisors over time.

Issued annually as part of the president's budget proposal, the Greenbook has previously suggested limiting business-owned life insurance and similar arrangements. The new measure could potentially raise $140 million in 2025 and $6.9 billion from 2025 to 2034. Designed for high-net-worth individuals, private placement life insurance and annuities allow customization of benefits and investments, often to gain tax benefits rather than to offer mortality or longevity protection.

Finsum: This proposal could take years to come into law, if it even ever happens, but the landscape could get more progressive if Biden is re-elected.