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Retirement Planning > Retirement Investing

What does the future hold for FIAs?

By Peggy Bresnick

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This year marks the 20th anniversary of fixed indexed annuities (FIAs), initially introduced to consumers as a key product that would help to provide a reliable and secure source of income through their retirement years. FIA sales have grown exponentially since then. In the past two decades, millions of consumers have purchased FIAs as part of their retirement portfolio, Jack Marrion, president of research and consulting firm Advantage Compendium Ltd., said in a NAFA Annuity Outlook article. What’s more, FIA sales are continuing to grow. In just the first quarter of this year, FIA sales totaled $11.6 billion, according to the LIMRA LOMA Secure Retirement Institute.

The Indexed Annuity Leadership Council (IALC) predicts demand for FIAs will increase in the future. “Customers who may have never heard of a Fixed Indexed Annuity in the past will progressively consider them at younger ages and companies will continue to develop new products that reach wider audiences and satisfy the widespread desire for a secure and comfortable retirement,” the IALC said.

But what else does the future hold for FIAs? The IALC forecasts the following changes, based on past and current trends:

1. The FIA customer will change. Traditionally, FIAs have been purchased by individuals who were planning for a comfortable retirement, primarily those in the Baby Boomer generation. However, FIAs increasingly are appealing to younger generations, like Gen X, Gen Y and even millennials, who have seen the effects of the Great Recession and want to ensure their financial security. According to the IALC, as young people begin to build on and advance in their careers, the market for FIAs will likely shift to a younger demographic than the traditionally older market of individuals nearing retirement age.

2. FIA products will change. FIAs have evolved over the past 20 years, and they will continue to change. Companies and agents continuously look for innovative ways to design new indexes and annuity products that offer consumers more options and increased flexibility. The industry will continue to innovate in order to offer customers FIA products that will best meet their changing needs.

3. FIAs will become more widely known among consumers. Traditional retirement options like pensions are dwindling, and individuals who have worked for the same company for 25 years are finding that they are not able to retire early with a healthy pension. In fact, business consultancy Towers Watson found that over the past 15 years, many large employers have shifted from traditional defined-benefit plans to defined-contribution and account-based defined-benefit plans. By the end of 2013, only 24 percent of Fortune 500 companies offered any type of defined-benefit plan to new hires, down from 60 percent of the same selection of employers back in 1998. With fewer pension plans offered, workers will have to take responsibility for planning for retirement. Individuals will need to become more informed and aware of their retirement financing options. 

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