Displaying items by tag: annuities

(New York)

Annuities have seen a pickup in interest over the last year. At first this was because of the big drop in markets last spring, but as the year progressed annuities picked up steam because of ultra-low interest rates, which effectively rob retirees of income. For those who want rock solid guaranteed steady income, fixed annuities work best. But for many, especially those can afford some risk to the exact of income they will receive, variable annuities can work very well. Most variable annuities have a couple critical features—they allow you some degree of investment selection, if not total control, and they often guarantee your principal (though not interest income). What this allows is higher payouts if the market does well, but still a guarantee you won’t lose your principal. For those who want the safety of an annuity, but still some income upside because of market growth, variable annuities can be a good choice.

FINSUM: Annuities have some strong demand behind them right now and only seem likely to do better as rates stay low and more Boomers enter retirement.

(New York)

Here is a non-sensical but fully logical sentence for you: bonds just aren’t “bonds” right now. What we mean is that bonds simply aren’t fulfilling their long-understood role any longer. They yield very little and have a great deal of risk—both the opposite of their traditional role. So where can advisors turn? One increasingly interesting area is annuities, and fixed index annuities in particular. They offer the downside protection investors need, and upside participation everyone wants. Principal is never put at risk to the market, but interest from the initial purchase is used to participate in upside. In other words, you have principal protection with some upside potential—just like bonds have traditionally been used.

FINSUM: Fixed index annuities seem to be a very good alternative to bonds in the current environment.

(New York)

The market has been extremely volatile this year and that has put many investors on edge, especially those nearing retirement who need to rely on their portfolios for regular income. Treasury yields have gotten so low that they are not a good source of yield. So where to turn? One option is fixed annuities, also called multi-year guaranteed annuities. In contrast to fixed-index annuities or equity-index annuities, the return on MYGAs is not tied to an index. Such MYGAs are currently offering spreads of as much as 300 bp over Treasuries, representing a strong opportunity for those who need guaranteed income.

FINSUM: Two things to bear in mind when considering these—they are generally quite illiquid as the money is “locked up”, and secondly, they do have default risk but often can have limited losses because of state guaranty associations.

(Boston)

Anyone who sell variable annuities, or even has a passing familiarity with the business, know that the headline above is a controversial one. The reason why is that the first version of the DOL rule caused annuities sales to drop. Even though that rule was vacated, it had already changed the structure of the market. However, Harvard is now saying the rule actually helped the VA industry. It says fees were lower and returns higher, that the rule did not force smaller investors out of the market, and that captive brokers put more weight on client interests. However, those in the annuity industry say the report is completely biased and that the researchers went in with the intention of proving the exact points they already assumed were true. Critics cited a number of flaws with the study, such as the methodology for calculating expenses and commissions.

FINSUM: While it is clear that variable annuity product suites, including fees and commissions, came down because of the rule, it does not seem clear that it helped everybody in general because of differing market access based on investor size.

(New York)

The huge market volatility that accompanied COVID has laid the state of American retirement very bare. Not only are countless people under-capitalized for retirement, but many pulled money out in March, missed the big recovery and are now sitting with considerably smaller portfolios. This has led even the most ardent anti-Annuities advisors—mostly RIAs—to start recommending the products to some clients. Annuities can lock in income that is very hard to get elsewhere right now given ultra-low rates. Annuities ae complicated products and there are many different varieties, ranging from immediate income to variable annuities to fixed income annuities with income riders. For fixed index annuities, check out joint-life policies from Protective Life, Minnesota Life, and Delaware life. For variable annuities, look at Jackson National Life, Transamerica life, and Brighthouse Financial.

FINSUM: Annuities can be a good choice right now depending on the state of a client’s preparedness for retirement and the other assets in their portfolios. Just pay attention to the fact that most annuities providers have significantly cut payouts recently because of the Fed’s actions on rates.