Displaying items by tag: variable annuities

According to LIMRA’s U.S. Individual Annuity Sales survey, U.S. annuity sales increased 16% to $79.4 billion during the second quarter. The top selling annuities were fixed-rated deferred annuities, which posted their best quarterly sales result ever. Sales came in at $28.7 billion, a jump of 79% from the prior year’s quarter. In fact, all fixed annuities showed positive growth. Fixed-rate deferred annuities are contracts that offer investors a fixed annual percentage yield with tax-deferred growth. They typically offer a higher rate of growth instead of an income stream over a specific period. The massive jump in sales can be attributed to the volatility in the markets this year and rising interest rates. The current average yield on a fixed-rate deferred annuity is around 3% or higher. Sales for traditional variable annuities didn't fare so well, falling 27% year over year to $16.5 billion, the lowest quarterly sales since 1995 due to market volatility. Variable annuities are tied to the market with no downside protection.

Finsum:Driven by market volatility, sales for fixed-rate deferred annuities had their highest quarter ever. 

Annuities have been one of the hottest topics since the Secure Act 1.0, allowing them to be a part of retirement plans, and that could be ramping up. The House of Representatives has approved the Secure Act 2.0 with an overwhelming majority of 414-5. Provision 201 would allow the minimum requirements distribution age to be increased from 72 to 75. Another key part of the bill is the automatic enrollment in 401(k)s with a very high contribution percentage. Life insurers are ecstatic about the bill and many believe this will drastically increase the demand and supply of annuities.

Finsum: Most investors underate these small changes to legislation that really open the gates for investments and spur lots of interest.

There has been a serious increase in interest in annuities during the pandemic, but overall the product suffered as retirements got put on hold. Bond market disruption has increased that excitement and Legal and General, a British provider, is expecting a big turn around with the pandemic in the rear view. They have already seen a 5% uptick in since the onset of the pandemic. A full recovery is underway and retirement is back on the agenda for many investors, which makes annuities attractive again. Additionally data around savings rates and flows are trending positive for annuities as well.

Finsum: Annuities are just the better alternative for many retirees when the interest rates and inflation are in the position they are now.

Sure the Fed is beginning to taper, and with that comes rising interest rates. However, for the end of 2021, it was the near-zero interest rates that pushed investors out of fixed-rate annuities, and into variable index annuities and RILAs. Fixed-rate annuity sales plummeted in the final quarter while the aforementioned variable products all grew by 10%. Sales in annuities grew by a staggering 16% in 2021, however, a lot of that growth was generated by a much lower 2020 due to the pandemic. Investors will look to shift back into fixed-rate products if rates begin to normalize or hit higher historical levels.

FINSUM: Look for fixed-rate annuities to make a come back in later 2022 because as interest rate hikes are coming and investors will capitalize on relatively higher real rates.

Annuities are more available than ever these days. Many large providers have been designing products just for RIAs and are making a big push in the area. Additionally, annuities are now easily included in 401ks. But when is it right to choose one? The overall value of annuities has declined as rates have fallen, but as rates rise, they are becoming more attractive as a source of good guaranteed income. Additionally, they offer unique tax benefits that help enhance returns. Brighthouse, for example is a leading provider of annuities and lead the industry with the FlexChoice (variable annuity) and Shield (index-linked annuities) products. Choosing the right annuity depends on your client’s goals.

FINSUM: Annuities increasingly fit into a client’s portfolio in myriad ways. In some cases for a lower wealth client, it can be a near one-stop shop to accomplish retirement goals, especially if that client is prone to not managing budgets well. In other cases, annuities can provide just a small portion of a portfolio, but do so with guaranteed income.