Fixed index annuities (FIAs) are on track to approach last year’s record sales of $48 billion, according to LIMRA’s reports on this year’s first two quarters.
While advisors and FIA buyers often focus on the product’s features during the accumulation phase, FIAs can also play an important role in retirement income planning.
Robert Klein, CPA, CFP, president of the Retirement Income Center in Newport Beach, California, finds several FIA features useful for retirement income planning. The first is the flexible withdrawal start date. That’s particularly valuable for clients who are several years from retirement, he said.
Those clients might not have an exact retirement date and even if they do, they might not need income from the FIA at that time because they have other sources. Deferring the start of withdrawals also allows the periodic payments to grow. “And, furthermore, there’s no requirement that you ever have to take income withdrawals, that you ever have to start those,” he noted.
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“In most situations it wouldn’t make sense not to start them because typically there’s an income rider fee for having that feature and the whole purpose is to have income but once again, there’s no stipulation that you have to take the income.”
FIAs’ flexibility extends to the annuitization and 1035 exchange options, Klein added. “I buy the FIA with the income rider, let’s say, at age 50 and now I’m 65. Do I turn on the income or should I annuitize it or potentially do a 1035 exchange of it for an opportunity for greater income potentially? So, it gives you more flexibility and annuitization is a possibility.”
Those options are lacking with other retirement income vehicles such as deferred income annuities (DIAs), he maintains. The timing of DIAs’ income start date is typically fixed, and while the contract may allow changes to that date, generally speaking the start date and the payout amount are fixed. Eric Thomes, senior vice president, sales, with Allianz Life in Minneapolis, Minnesota, highlights the potential for increasing FIA distributions post-retirement as another benefit.