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Life Health > Annuities > Variable Annuities

7 Reasons Why Annuities Have More Value in 2021

By Harry N. Stout

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What You Need to Know

  • Older investors have gains to lock in.
  • High-income investors have income taxes to manage.
  • You and the issuers have expertise to provide.

Have you noticed the increased interest in annuity products this year? This increased interest is coming from both consumers and financial professionals.

Why is this happening? Why now? I think there are seven common sense reasons for this awakening. These reasons have their roots in demographics, the economic environment and recent product innovations. Let’s explore the rebirth.

Here are the key areas where value is available for the buyer and financial professional:

1. The Demographic Steamroller Continues

The aging of the US population continues. There are 10,000 people per day turning age 65 and 16.5% of the population is now age 65 or older. By 2030 all baby boomers will be at least 65 years of age. This growing age cohort is moving from accumulating assets to protecting what they have and generating the most income from their capital.

2. Desire to Protect Equity Market Gains

Older individuals who have done well in the equity markets are looking for ways to lock in the gains they have generated. Moving the money from pure equity products into most types of annuities protects their principal, including the gains.

3. Tax Deferral

One of the intrinsic values of annuity products is the tax-deferred build-up of accumulated interest and product gains. With income tax rates likely to increase at the federal, state and local level tax-deferral is a very valuable characteristic of annuity products.

4. Risk Management

Annuities are an insurance product, and this is becoming better understood. Whether to protect principal, create guaranteed income streams or to take advantage of supplemental long-term care and death benefits these products are insurance.

One use that is increasingly common is to trigger guaranteed income streams as a hedge against sequence of return risks for other equity assets.

5. The Need for Sources of Protected Lifetime Income

Individuals cannot find sources of protected lifetime income that annuities can provide. The number of individuals with defined benefit pensions continues to decline.

With interest rates on long-duration fixed income investments at such low levels annuities have become a more attractive tool to use in financial planning.

6. Leveraging Product Efficiencies

When purchasing an annuity product, the buyer is receiving the professional asset management capabilities of the issuing life insurer, asset/liability management expertise, actuarial knowledge, mortality credits from the insurers having large books of business and the protections of state-based solvency regulation behind the capital the insurer has deployed to support the business.

These are capabilities most all buyers or financial professionals do not possess if they chose to create an annuity-like replacement vehicle.

7. Product Innovation

Life insurers have brought new product structures to market (e.g., buffered or registered indexed linked annuities), new indexing strategies, products focused on the needs of the RIA community and adding innovation features such as long-term care benefits and the ability to pay for advice from the annuity product without triggering current income taxation.

Remember This

Annuities have strong intrinsic values. Tax deferral, flexible income options, limited liquidity, accumulation provisions and payout guarantees are at the top of the list.

As a result of this period of historically low interest rates, financial professionals are turning over rocks to find their clients yield and sources of protected income. In prior eras, when interest rates were much higher, taking accumulated savings and turning them into reliable, mostly principal protected income streams was much easier to accomplish

All along annuity products have been there, staring consumers and financial professionals in the face. Now looks to be the time for them to get their time in the sun. I think all parties should look to capture this opportunity.

Harry N. Stout (credit: Stout)Harry N. Stout has been the president of Fidelity & Guaranty Life, deputy chief executive of Old Mutual Financial Network, and managing director of Insurance Insight Group. He is also the author of The FinancialVerse personal finance books and of a new book, Today’s Annuities — A Tool to Create Protected Lifetime Income.

(Photo: Gunnar Pippel)

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