Displaying items by tag: annuities

In an article for InvestmentNews, Emile Hallez reports on annuity sales reaching record levels in the first-half of 2023. Demand for these products is due to the highest interest rates in decades, coupled with economic uncertainty with factors like inflation and concerns of a recession. Overall, annuity sales reached $182.9 billion in 2023 which is a 28% increase from the first-half of 2022. 

One of the fastest-growing annuity categories is registered index-linked annuities (RLIA). These have gone from a fraction of the annuity market to becoming one of the most popular in 2023. In 2017, only 4 companies offered these products, while 17 do so currently with others planning their own offerings in the coming months. 

Interestingly, RLIA sales are up 8% compared to the first-half of 2022 but sales of traditional variable annuities are down 25%. RLIAs are different from variable annuities because they offer more protection with some also offering some sort of guaranteed income. 

Recent developments are supportive of continued inflows into these products especially given what’s happening in other asset classes. Equities have enjoyed a surprisingly robust performance, but it’s leading to concerns about valuation. Fixed-income also offers generous yield, but the asset class posted negative returns in 2022 and middling returns in 2023. Therefore, it’s likely that annuities continue to see record inflows in the second-half of the year. 

Finsum: The outlook for annuities is quite strong for the second-half of 2023 given high interest rates, an expensive stock market, and volatility in fixed income.

Your eyes don’t deceive you. Well, at least not this time.

In the second quarter of the year, there was a bounce of 12% year over year to $88.6 billion, reported limra.com. The catalyst: a tag team of unprecedented registered index linked annuity and fixed indexed annuity sales, according to preliminary results from LIMRA’s U.S. Individual Annuity Sales Survey.

“Double-digit equity market increases and stable interest rates have prompted investors to seek out greater investment growth opportunity through RILAs and FIAs,” according to Todd Giesing, assistant vice president, LIMRA Annuity Research. Economic conditions continue to be favorable for the annuity market, he added.

-Last year, fueled by volatility in the equities markets and a spike in interest rates, there was a bump in annuities sales, according to winintel.com. Also in 2022, total U.S. annuity sales hit $310.6 billion -- a 23% increase over 2021. And, wait, there’s more. For you history buffs, it was a jump of 15% from the sales record hit in 2008.

In an article for the FinancialTimes, Moira O’Neill discusses the pros and cons of buying an annuity today. Annuities are increasingly on investors and advisors’ minds because many are now offering yields that are equivalent to long-term returns achieved by equities. Further, inflation is trending lower, while many believe that current elevated rates will prove to be transitory.

From a less quantitative perspective, annuities also offer peace of mind given that there is no variability in terms of returns regardless of what happens with the economy or inflation or monetary policy. This can be appreciated more in the current environment given the rising risk of a recession. 

Given that most annuities operate in perpetuity, a big factor in whether buying an annuity makes sense depends on an investors’ lifespan. The longer they live, the better an annuity will perform. And, this would certainly be the case if we go back to a low interest rate world which prevailed for much of the past 2 decades. 

For investors and advisors who believe that inflation is here to stay, buying an annuity doesn’t make sense. Instead, they should find better opportunities in other asset classes which tend to outperform in an inflationary environment. 

Finsum: Annuities are seeing major demand due to high interest rates, falling inflation, and increasing concerns that a recession is looming.

In an article for SmartAsset, Patrick Villanova CEPF discusses the pros and cons of investing for retirement in TIPS, Treasuries, and annuities. All of these are methods for retirees to generate income during their retirement. And, this is increasingly needed given that traditional pensions are being phased out of existence. 

TIPS are treasuries that are designed to protect against inflation. In essence, the yield is fixed, while the principal varies based on inflation. Some will create income through buying TIPS of different maturities, creating an income stream that is indexed to inflation. 

An annuity functions similarly but without the inflation component. Essentially, it’s a way to turn cash into an income stream. Treasuries are the most straightforward vehicle for saving, and it’s the benchmark that other methods are compared against. 

According to Villanova, the best strategy ultimately depends on a retiree’s lifespan and the rate of inflation. Assuming a moderate inflation rate of 2.5%, Treasuries would outperform annuities and TIPS slightly. If inflation returned to levels seen in the past decade, then Treasuries would perform the best. If inflation were to average 5%, then the TIPS strategy would handily outperform Treasuries and annuities.

However, annuities would handily outperform in the event that a retiree lives longer than 20 years. Given that the income of annuities is fixed, the value of this income would be diluted by higher levels of inflation. 

Finsum: Annuities, TIPS, and Treasuries are 3 of the most popular methods to create income during retirement. Patrick Villanova compares and contrasts each to see which is the best strategy for retirees.

In an article for Kiplinger’s, Jerry Golden discussed how running out of money is an investor and retiree’s worst nightmare, and how annuities can help address these fears. Retirees do face challenges such as uncomfortably high inflation, soaring healthcare costs, and concerns about the viability of social payments. 

Therefore, investors need to have a solid plan to ensure that there remains steady and sufficient income on top of Social Security and other potential pension payments. The goal should be to have a growing and guaranteed income that continues throughout all types of economic circumstances. 

One suggestion for retirees with these fears is to use a more conservative withdrawal rule rather than the standard 4%. This will give an increased margin of safety and boost your portfolio’s resilience. 

This is difficult and not practical often in reality. A better approach is to integrate financial products in the portfolio which reduce risk and dampen portfolio volatility such as income annuities. 

Having an income reduces the odds of money ‘running out’ by a significant degree while also allowing retirees to let their portfolios continue to work and grow. Often, fear is an impediment for retirees from achieving their financial goals, because they are unwilling to stick to the plan through difficult conditions.

Finsum: Running out of money is every retiree’s worst fear. Annuities are one way that retirees and advisors can address these fears.