Annuity FYI Blog

In the article “A Lost Decade: Or Was It?,” Mark Triplett of Insurance News Net says that he researched the indexed annuity for a life and annuity workshop to see if the product was still a good value in this interest rate market.  The author found that indexed annuity products are still very relevant and consistently meet and even exceed investors’ expectations.  The advertised benefits of indexed annuities include the fact that they allow for market gains without the worry of losing any of your principal investment or previous interest rate gains.  This still holds true and the author found that the average interest rate opportunity for an indexed annuity is higher than fixed annuity rates.

One of the main differences with an indexed annuity is that investors are earning interest on their annuity rather than a return or gain on their investment.  Because of this, they are not losing money in a down market.  Many people refer to the 2000′s as the “Lost Decade” because most investors did not gain any money and a lot of investors actually lost money from the year 2000 to today.  If you had an indexed annuity, however, which is based on any given stock market index, you would still have received a gain over the past decade even with overall downturns.  That is because you would have received interest in any up market and not lost money on your principal or gains in the down markets.  Your account would have stayed flat in those particular periods.

Interest rates have been low now for eight years.  Although it is likely that they will go up eventually, experts have been saying that for years.  Indexed annuity products have proven invaluable for many investors over the past decade.  It is always smart to have a what-if strategy in case interest rates really skyrocket and it would be in your best interest to compare equity linked CDs or fixed annuity products in the future.  Right now though, the author found that it wasn’t difficult to defend indexed annuity products because they have proven to be a beneficial investment for many people over the last decade.

According to TMC Net, AXA Equitable has introduced a new application for Blackberry smartphones that will make annuity transactions easier.  Jyothi Shanbhag’s article “Business Mobility: AXA Equitable Releases Financial Super Apps for Blackberry Smartphones” says that the apps include annuity products, life insurance, and other products sold by AXA Equitable.  Their new calculator app, called the Retirement Income and Life Insurance Interactive calculator, was made to help investors plan their future more easily.  It helps you determine the amount of money you’ll need to save for retirement and estimates how much life insurance you should carry.

AXA thinks that these Blackberry apps will help investors to be more knowledgeable about their finances, not to mention more hands-on.  The newest apps can be synchronized with your address book, so when you are in the application you can call or e-mail your advisor immediately with questions about fixed annuity rates or anything else.  Through the calendar application, advisors can remind investors of upcoming appointments or even reaching certain financial goals.  Back in 2009, AXA introduced some important financial apps for the iPhone and these latest Blackberry apps are just expanding their offerings.  They have information regarding saving for college, retirement shortfalls, life insurance, life expectancy and annuity products.

Although fixed annuity rates are low right now, they are following the trends of similar products like CDs and treasury bonds, so investors have to keep it in perspective.  The Insurance News Net article “Do Fixed Annuity Rates Matter Right Now?” by Linda Koco tries to put the lower rates into perspective for us.  According to the Fisher Annuity Index, which tracks rates over one-year periods, 5-year fixed annuity rates were 2.23% as of January 31.  That is a decline from the same product last year which offered an average rate of 2.64%.  Since other similar investments are showing the same interest rate trends, fixed annuities are still a good investment option as a source of guaranteed lifetime income.

Fixed annuity rates did start increasing in February, according to the same report.  There are not too many products out there offering rates greater than 3%.  The highest rate investors can get for a 5-year fixed annuity is 3.5% right now.  One way to get a better return from fixed annuities is to divide your money into multiple products, such as putting some in 3-year, 5-year and even 7-year products offering higher interest rates.  The 7-year fixed annuity rates can be as high as 4%.  The majority of fixed annuity investors have their money in 5-year products right now.  There are even a handful of wealthier investors putting their money into companies with lower ratings that are offering higher interest rates.

Some advisors recommend investing in fixed indexed annuities to look for better returns.  This way investors get interest credited based on one of the external stock market indexes.  The different policy features that are offered with fixed indexed annuities are drawing clients in.  Guaranteed Lifetime Withdrawal Benefits (GLWBs) and death benefit guarantees are two of the most popular right now.  Investors still care about their annuity rates, but in this type of environment they just can’t be the most important feature.

The Kehrer-Jackson Monthly Bank Annuity Sales Survey showed a continuing increase in sales of variable annuities last year.  Insurance News Net’s article “Recovery in the Works for VAs in Banks?” by Kehrer-LIMRA summarized the annuity findings.  Fixed annuity sales remained stable, while sales of variable annuities increased each month in the fourth quarter.  There was a 4% increase in combined sales of fixed and variable annuities through banks, for a total of $2.7 billion.  That was around the same increase that the products had in November, but 7% above December of 2009.  Since the low sales number in January of 2010, total annuity sales have increased 24%.

Sales of variable annuities were $1.6 billion in December of 2010, a 21% year over year increase and a 6% increase from November.  This was the second straight month with an increase and brought the sales back up to the levels from springtime of last year.  The gap between sales of variable and fixed annuities is widening by the month.  Back in December of 2009, $.84 in variable annuities was sold for every dollar of fixed annuities.  After a complete turnaround, there is now $1.48 in variable annuities sold for every dollar of fixed annuities.

Fixed annuity sales in banks were relatively stable in the fourth quarter of 2010, staying around $1.1 billion.  The December sales of $1.08 billion were just a slight increase from November’s sales of $1.07 billion.  Fixed annuity rates and 5-year CD rates are being closely monitored because of the spread.  It is now at 34 basis points, with fixed annuities being above CD’s with five year time-frames.  Kehrer-LIMRA is expecting a sales increase because of this larger spread.  Whether looking at fixed or variable annuities, it is best to consult an expert for your individual situation.

In Hometown News, Rick Bloom was asked whether a couple in retirement should use their $50,000 savings to purchase a fixed annuity or a CD given their individual situation.  Bloom’s article “Fixed annuity can be good retirement plan tool,” contains his opinion that a fixed annuity is their best option.  He says that there are many great fixed annuity products on the market and points out that they are a great investment for people looking to preserve their principal.  While fixed annuity rates aren’t spectacular right now, they are higher than the rate of return currently offered on CDs.  Another benefit of fixed annuities is that your money grows tax deferred in the account.  You won’t pay taxes until you start withdrawing the money, unlike CDs that are taxed yearly.

The two options that Bloom discusses in the article are traditional fixed annuities and equity indexed annuities.  Your traditional fixed annuity investment will guarantee you an interest rate over the life of your annuity.  Equity indexed annuities guarantee a rate of return as well, but they also offer a bonus based on the performance of whichever stock market index is linked to your particular annuity.  Your principal is safe with both investments, but the rate of return you receive fluctuates with the stock market.  In a sort of hybrid of these annuities and CDs, investors can compare equity linked CDs as another type of investment.  If you are looking to purchase a fixed annuity, they are bought through representatives of the companies selling them rather than the actual company.  It is crucial to find an honest and competent salesperson so do your research and speak with an expert.