Fixed indexed annuities will continue to be a “bright spot” for the annuity market in 2015 and the industry can expect a “continued shift” of annuity purchases in the new year toward principal-protected and income-producing products, as baby boomers confront their retirement realities.
So says the Insured Retirement Institute’s State of the Industry Report, released Dec. 16. The report also noted that next year, interest rates could experience a “significant uptick” above the critical 3% level, which could drive “a resurgence of product development and marketing efforts on the variable side, but in the interim, demographics favor continued migration toward guarantees of both principal and income.”
Fixed indexed annuities, however, will continue to be a bright spot in a persistently low interest rate environment, the IRI report stated, as both a retirement savings accumulation vehicle offering a principal guarantee and growth potential, and as an attractive alternative to certificates of deposit.
“Fixed indexed annuities and immediate and deferred income annuities are showing especially strong growth as the industry is poised to begin 2015 in a strong financial position and with favorable public policy support,” said Cathy Weatherford, IRI’s president and CEO, in a statement.
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Ken Nuss, founder and CEO of AnnuityAdvantage, added in a statement that because fixed annuities are not subject to stock-market-based losses and the issuing insurance company provides contractual guarantees, fixed indexed annuities are among the safest and best choices for funding retirement.
“Fixed indexed annuities can provide retirees with one of the most reliable and efficient sources of retirement income,” said Nuss. “Savvy savers have long understood the merits of indexed annuities, but now a broader cross section of the investing public has entered the marketplace in droves. With the economy still on shaky ground, many near retirees worry they’ll be working much longer than anticipated. Fixed indexed annuities are a virtually recession-proof bulwark against those kinds of concerns.”
Nuss noted several key advantages of fixed indexed annuities: They offer a guaranteed minimum surrender value for the duration of the contract term, and interest earnings during the accumulation phase are tax deferred until the owner begins making withdrawals.
While some financial planners might advise against indexed annuities before the age of 40, Nuss argued that “it’s never too early to consider an alternative to the conventional wisdom of retirement planning.”
Said Nuss: “Provided that one can avoid depositing funds that might be needed for living expenses or emergencies, there’s no reason not to purchase a fixed indexed annuity at the start of one’s career as opposed to the middle or the end. A distinct advantage of buying early is that compounding over a longer term results in larger payments during retirement.”
Weatherford added in her statement that income planning advice and guaranteed retirement income solutions tailored to meet consumers’ demand will be of utmost importance in the New Year, “as Americans become more aware of their retirement income needs. The industry, she said, “is presented with the tremendous marketplace opportunity to innovate and develop new products to match the increasing demand for insured retirement products.”