Annuity FYI Blog

More and more insurance companies are offering indexed annuities now, especially those who were traditionally only big sellers of variable annuities.  Sheryl Moore’s Insurance News Net article, “Interest in Indexed Annuities on the Rise,” says that you have to look at the market to understand why many companies have decided to sell fixed equity indexed annuity products in addition to their other annuities.

During market increases, many people transfer their money from fixed products to securities so that they can take advantage of the increasing market.  Variable annuities sell very well after the markets hit rock bottom because they can only go up from there.  Market increases provide investors with great gains in their investments.  In a declining market however, investors tend to leave stocks, bonds, and variable annuities for fixed products.  They are fearful of losing money, including both principal and potential gains, so they turn to fixed annuities and indexed annuities.

When fixed interest rates are increasing, there is usually a corresponding increase in sales of fixed annuities and CDs.  When fixed annuity rates were in the double digits, there was an influx of fixed annuity 1035 exchanges and CD rollovers.  During a declining period for fixed interest rates, some investors hold on to their fixed products while others switch to securities like a fixed equity indexed annuity for some potential of a gain.

Taking a combination of these market conditions into effect, indexed annuities stand to gain in a low market with low interest rates.  That is why they have become increasingly popular in the last few years.  Insurance companies who previously disliked the products have realized that they stand to benefit from introducing their own version to consumers.  The principal protection with possible market gains is looking very good to investors right now.

Written by Rachel Summit

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According to “Retiring in a positive tax climate is only half the battle,” written by Christopher Scalese for The Times-Tribune, fixed and fixed indexed annuities could be great retirement vehicles for Pennsylvania residents.  They are lucky to live in a state with favorable tax codes for retirees, but Pennsylvania residents still have to find a way to maximize their retirement income.  In Pennsylvania, they have a low sales tax, Social Security benefits are not taxed on the state level, and pensions are only partially taxed.

These tax benefits are a great start, but residents still need to make the most of their retirement savings and annuity products are a good way for many people to do that.  Interest rates are very low on bank CD’s right now and although annuity rates are lower than they have been in the past, fixed annuity rates are higher than those of CD’s because they are offered by insurance companies rather than banks.  Fixed annuities are a good way to earn interest tax-deferred and keep your money safe from volatile markets.

If you are looking for some market exposure, fixed indexed annuities give you that, but they still protect your principal from any losses.  People who choose annuities are typically looking for a safe way to grow their money and ensure that it lasts through retirement.  Annuities also offer tax savings that can add to the benefits already established for Pennsylvania residents.  Every safe investment has terms that you should look into and annuities are no different.  It’s best to speak with an expert and make sure the product is right for you.

Written by Rachel Summit

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On the heels of ING’s negative press regarding variable annuities, their shares fell an average of 5% this week.  This information comes from Henry Steelman’s Annuity News Journal article, “Shares in ING Group Fell 5% Wednesday.”  ING is a huge financial institution all over the world covering banking and investment services as well as variable annuities and life insurance needs.  The downward trend in equities and lower annuity rates have taken a hit on ING’s variable annuities, so much so that the company expects a charge of $1.5 billion for its U.S. insurance unit.

The investment portfolios tied to their variable annuities have been under-performing and the company is paying out much more in premiums because of increasing life spans.  Moody’s lowered ING Group’s financial rating in the U.S. from A2 to A3 and Fitch lowered their ratings as well.  Investors were likely reacting to these financial ratings decreases in addition to the news.  Shares were down 5% in Amsterdam, then closed down 2%.  In the NYSE, ING’s American deposit receipt was down 8%, then closed down 3%.  The company plans to use contingent funding and review many aspects of their variable annuities going forward.  Many analysts are telling investors not to sell their shares of ING just yet.

Written by Rachel Summit

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The Insured Retirement Institute found that variable annuities are as popular as ever, reaching record levels of sales in the 3rd quarter of this year.  Net variable annuity sales of $8.8 billion had not been reached since the 3rd quarter of 2007 saw $8.9 billion in sales.  With this quarter’s $39 billion in total variable annuity sales, the industry is on track to reach $150 billion in annuity sales for the year.  This information comes from Advisor One’s Danielle Andrus, in her article “Variable Annuity Sales Highest Since Q3 2007.”  New investors are flocking to the guarantees and lifetime income of variable annuities and other annuity products.  Cathy Weatherford, President and CEO of the IRI, said that the industry has showed its strength and growth potential with the forecasted $150 billion in sales for 2011.

Quarter to quarter sales were down 4%, but annuity sales increased 6% from this quarter last year.  There were significantly fewer changes to benefit options in the 3rd quarter of this year, both compared with the 2nd quarter and compared with the 3rd quarter of last year.  The good thing for clients is that the benefits being changed are all very generous, as they have been in the last few years.  The biggest changes are with new share classes and GMWB riders that offer lifetime benefits.  Fixed annuity sales have been rather flat this year, at $58.3 billion to date.  Immediate annuity rates and many other factors go into the overall sales of annuity products, but the safety and guarantees of annuities are keeping them popular right now.

Written by Rachel Summit

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There are far too many myths out there regarding annuities, according to the Digital Journal’s “JD Mellberg Tackles Annuity Misconceptions.”  The best annuities are a perfect retirement vehicle for many people, so JD Mellberg Financial set out to get accurate information about the products to the public.  The first myth is that the stock market is the best place for your money, even with the risks associated with it.  However, there are few circumstances where the stock market is a better investment than an annuity when you are trying to generate retirement income.

Secondly, people have a misconception that annuities are too expensive for them.  When generating retirement income is your sole goal, annuities actually save you money compared to some other investment choices.  A third myth surrounding annuities is that they won’t provide you with the money you need in the event that you get very sick.  Some of the best immediate annuities have options available where your payments increase up to 400% once you reach a predetermined age.  Others give you the option of withdrawing a certain amount of your principal without any penalties.

This amazes me, but the fourth misconception regarding annuities is that only variable annuities exist.  Depending on the fixed annuity rates offered, fixed annuities can be just what retirees are looking for to complete their retirement package.  Variable annuities are great for some retirees, but others prefer the security of a fixed annuity.  Lastly, people have the misconception that annuities are not the best product for most retirees.  While they aren’t perfect for everyone, the market protection they provide along with possible gains and guaranteed income are perfect for many retirees.

Written by Rachel Summit

Follow Rachel Summit on Twitter http://twitter.com/#!/financemama