Displaying items by tag: annuities

(New York)

The annuities world is generally not what most advisors would describe as “exciting”. Annuities are crucial products which fill a valuable void for millions of clients, but there is nothing in the space akin to a sizzling thematic ETF. However, New York Life recently launched a very interesting product that brings a degree of flexibility to the space that has never been available before. Their new Index Flex offering combines the benefits of variable annuities with those of index and fixed annuities, and very excitingly, allows holders to move between the two. Index Flex is essentially a hybrid product that combines the predictability of an index-linked annuity with the upside potential of a variable annuity. Taken as a whole, this is a combination of benefits that is only available at NYL.

FINSUM: As our advisor readers will know, we cover annuities to a significant extent and this new product launch is pretty rousing to see as the ability to shift between strategies is a highly unusual and beneficial feature for clients.

(New York)

One of the challenges with annuities, whether as an annuities salesman or as an advisor explaining them to clients, is how to position them. The most fundamental utility of an annuity is the idea that it can provide income for life. In other words, the client can have peace of mind that they will have income even if they live to be 120. In this way, an annuity is not a market-based investment in the traditional sense, but rather it is an insurance contract. For advisors this concept will be second nature, but for clients this is not as clear. Accordingly, the main value of the annuity is not specifically in the income it provides, but in the risk mitigation it offers against very long lifespans for clients.

FINSUM: If you are active in annuities this might sound like a broken record; if you aren’t, it is a useful line of thinking. Either way, everyone needs to be reminded!

(New York)

Annuities have been doing very well ever since the pandemic began, and the reasons make total sense: high volatility and ultra-low rates which have rendered bonds a very poor source for retirement income. With that in mind, it is no wonder that protection-focused annuities have been seeing heightened sales. 2020 actually saw a significantly higher volume of protection-focused annuities sales than 2019, despite the fact that overall wealth and liquidity fell considerably at the start of the pandemic. The big driver of demand was the huge fall stock indexes experienced early in the pandemic.

FINSUM: This makes a lot of sense as a huge percentage of Americans are approaching retirement and 2020’s market gave them a terrible fright. We expect this trend to continue.

(New York)

What is the biggest challenge for retirement in the current era? The answer is time: people are living longer than ever, which means they need long periods of consistent income. Long term consistent income in retirement is a challenge because people need to set enough money aside and be disciplined to not withdraw too much. With all that in mind, annuities play a very special role, as they provide guaranteed income and at the same time, keep a lid on the pace of distributions, which means money will pay out throughout the entirety of retirement. Bonds used to play this role, but given ultra-low rates and high prices, they simply no longer do.

FINSUM: Given the volatility in stocks and the low rates and overvaluation in bonds, annuities have a very strong role to play in almost any portfolio.

(New York)

Indexed annuities are seemingly just one option from the vast annuities market available to advisors. That said, they fill a unique and interesting role. At their most basic level indexed annuities have payouts tied to the performance of specific indexes. This can be good because they can offer more income than fixed annuities, but they also come with caps that mean you don’t get to participate in anything close to the full upside of the market. If you want a little more potential return, buffered annuities are a good idea. They offer more upside on index returns in exchange for more risk on the part of investors. The “buffer” is essentially a contractual mitigation of losses. For example, if the market loses 30% in a given year, a 10% buffer means the annuity holder would on lose 20%.

FINSUM: These are essentially a more aggressive type of annuity that offers higher payouts and more risk than traditional fixed annuities. These are a good option for those who have the freedom to try to achieve more upside, or those who are afraid of inflation.