Displaying items by tag: FIAs

(New York)

The annuities market has not been known for a great deal of innovation. But just like the industry’s reputation, things are improving dramatically. Entrepreneur.com has put out their new annuity awards and the best newcomer award goes to Brighthouse Financial. In just four years the innovative new annuities provider has gone from inception to a multi-billion Dollar annuities seller each quarter. It’s easy to see why. At the heart of their lineup are their FlexChoice Access and Shield products. FlexChoice Access is part of Brighthouse’s variable annuities suite while Shield is an index-linked annuity.

FINSUM: Brighthouse is really changing the game with its new products. For instance, Shield has no annual fees, has guaranteed income, and still offers upside tied to market indices.

n.b. This is sponsored content and not FINSUM editorial

(New York)

Data from 2020 is in and it is clear: annuities are increasingly popular among advisors, and we mean that in the strictest sense of “advisors”. Annuities sales have not just grown with broker-dealers, but also with RIAs. For many years RIAs shunned annuities, but recently two major changes have made RIAs warm to them. Firstly, annuities compensation has become more aligned with RIA pay models, and secondly, with so many clients retiring in a period of high volatility, there is a greater need than ever before. According to David Lau, CEO of DPL Financial, “RIAs historically have used mostly investment-only variable annuities with the occasional single-premium immediate annuity mixed in, and that is because annuities until recently haven’t been built to fit into their business model. He continued “One of the things that’s misunderstood about annuities is that in a low-interest-rate environment, it’s something you may not want to consider … In today’s market with interest rates where they are, it is about 41% more expensive to fund retirement income using a bond portfolio than it is using an annuity.”

FINSUM: That last quote about the affordability of annuities is a really key point. Annuities can play an important role in a portfolio more cheaply than most instruments right now, and do so with less risk.

(New York)

If there were ever a product built for steady retirement income, it is fixed annuities. With the big decline in fixed pensions, fixed annuities have become a must-have option for many retirees who need guaranteed income. They are the simplest annuity—principal and income are guaranteed, but rates are fixed. In other words, the insurance company is bearing the risk, so they get the upside, but the customer gets peace of mind. Therefore, the basic utility of annuities is to support everyday income in retirement. There are other uses too, especially in the current market environment. For example, “Right now, some fixed annuities make an attractive alternative to both bonds and CDs in a portfolio, due to the principal guarantees and interest rates offered”, says one financial advisor at Stack Financial Services.

FINSUM: The most important thing to remember is that annuities have utility in most portfolios, but they should only ever be just a portion of a portfolio. They suffer from illiquidity and are very susceptible to inflation, but they also have guarantees that no other asset class can offer.

(New York)

Annuities are a widely available and popular product, and they are heavily utilized by retirees whose main focus is income. Therefore, it would make sense that tax planning around that income would be more of a major consideration—especially because annuities have some peculiarities as it regards taxation—but in general it does not seem to be an explicit topic. One of the first things to remember is the difference between qualified and nonqualified annuities—the former being in retirement plans, the latter not. Both require mandatory withdrawals after age 72. It is critical to remember that only interest, not principal is taxable when withdrawing money from a nonqualified plan. This is a big danger zone that some retirees fall into. Two other important notes: annuity interest used to fund long-term care insurance can be used tax free; and spouses can assume ownership of an annuity in the event of the death of their spouse tax-free.

FINSUM: For advisors who readily deal in annuities, this info will be second nature. However, there are a lot of advisors who are just starting to get into annuities and this info will be quite useful.

(New York)

In what is easily our favorite investing metaphor of the year, Kiplinger recently wrote an article that said annuities are the broccoli of investing—many people try to avoid them, but every retirement portfolio needs them. A recent study found that while most people buy auto, home, health, and life insurance, the large majority of people avoid buying insurance for one of their biggest fears—running out of money in retirement. This is exactly where annuities come in, as they are essentially insurance contacts that provide guaranteed income in retirement (depending on the type you choose). Deferred annuities are the most common option, as they defer payment for up to decades, and then start paying out upon retirement or an age threshold.

FINSUM: Advisors who are sell annuities already understand utilities, but many don’t fully grasp their use, especially given the negative aura they have had for many years. Most retirees’ portfolios can benefit from annuities.