Immediate annuities continue to draw attention as a financial planning tool but that’s not translating to higher growth for the products. LIMRA’s stats showed a decline of 10% in fixed immediate sales from 2008.
According to the Insured Retirement Institute’s figures, fixed income annuities accounted for 8.4% of the fourth quarter 2009′s fixed annuity market share, averaging about $1.9 billion per quarter for the year. The flat sales certainly can be attributed at least partly to low interest rates; nonetheless, advisors still find that it’s a viable solution in the right circumstances.
Cheryl Krueger, FSA and president of Growing Fortunes Financial Partners LLC in Schaumburg, Ill. recently met with a retired couple whose savings had been hit hard by the market crash. The clients received Social Security but no pension and the bulk of their savings had been rolled into an IRA. Based on the clients’ income goal, their (now former) advisor had recommended they move 100% of their portfolio into a variable annuity.
After meeting with the clients and analyzing alternatives, Krueger recommended they invest roughly one-third of the portfolio in an immediate fixed annuity, with the balance invested in a diversified mix of equity- and bond funds. They chose a joint-and-survivor annuity with a refund feature.
Krueger admits that current low interest rates were a concern but her analysis indicated the annuity was worthwhile.
“I calculate if you live 20 years, what’s your total rate of return that you would get from the annuity and if you live 30 years, what’s the total rate of return that you would get, because to me it’s really longevity insurance,” she says. “Also, many of my clients want to be able to pass on a large estate and for this particular client, that was not their main criteria — they really wanted to make sure they had enough income.”
Jerry Verseput, CFP, and president of Veripax Financial Management LLC in El Dorado Hills, Calif., recently worked with a newly widowed client who needed to create an “extremely low risk” income stream from the life insurance benefits she received.