Annuity FYI Blog

In “Understand fixed-indexed annuities,” James L. Watt of The Coloradoan explains that while fixed indexed annuities are complex products, they can offer you unparalleled market protection.  That author notes that money market funds, 5-year CD’s, and both 5- and 10-year U.S. Treasury notes are not even offering returns that can maintain your buying power when they are up.  Fixed indexed annuities are a kind of combination of fixed and variable annuities, offering the best benefits of both products.  They guarantee a minimum interest rate no matter what happens in the markets, but also link with a specific market index in the hopes that you’ll receive an even greater interest rate if markets increase.  While the return is less than that for bonds and less than stock potential, you are also guaranteed to get your principal back because it is protected.

Your fixed indexed annuity return is typically based on three factors.  The participation rate is the percentage of any gain that you will get, the best are around 90%.  There also may be a spread or asset fee that reduces your percentage.  If your spread were 3.5, you would get a 6.5% gain with a 10% market gain.  There are also interest rate caps with most fixed indexed annuities.  In 2009, the S&P 500 Index increased by 23.5%, but if your cap was anything like the norm of 7-10%, you would have received the 7-10% interest of your cap.  But if you take into account the stock market performance from 2000 to 2009, the S&P 500 decreased by 24%.  This caused huge losses in stocks and many other investments; compare annuities and  most lost nothing.  If you had a fixed indexed annuity with a 3% guaranteed interest rate and 90% participation rate which is likely, you would have seen a 2.7% gain while everyone else was losing.  In order to receive the guarantees of fixed indexed annuities, you sacrifice huge gains for smaller ones but don’t have to worry about any losses.

Written by Rachel Summit

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According to John Sullivan of Advisor One, there will be 82,000 more advisors selling annuities from Lincoln Financial Group because of their partnership with Primerica.  In the article, “Primerica Reps to Distribute Lincoln Financial Indexed Annuities,” it says that there will be two phases to completing the new distributions.  Primerica employs the biggest number of licensed annuity sellers in the United States, so the fact that they will now be selling Lincoln Financial’s fixed indexed annuities is a big boost to the company.  A smaller group of Primerica reps will start selling Lincoln’s New Directions and OptiChoice annuities now.  By early 2012, the second phase will include all of Primerica’s reps selling on a national level.

Lincoln Financial has put a team in place to support their relationship with Primerica, headed by John Chidwick.  He’ll be the national sales manager in charge of all back office support activities for Primerica.  Both companies are looking to offer their clients retirement products that offer a potential for gains along with protection against down markets.  Primerica’s focus on ‘Main Street’ clients will allow Lincoln Financial to expand their position in the middle market.  Primerica’s president is excited to add a quality product for his reps to take to their clients when planning their retirement.

Written by Rachel Summit

Sophisticated investors sometimes use “collar” strategies to protect their investments. When someone has a collar around a stock, for instance, he or she obtains the right to sell it at a certain price (by buying a “protective put”) and gives someone else the right to buy it at a certain price (by selling a “covered call”). The investor is protected against loss and, until the stock price rises, earns revenue from the call.

A relatively new variable annuity from AXA-Equitable was described to me as employing a collar strategy. The product, which resembles a fixed indexed annuity more than a variable annuity, is called Structured Capital Strategies ADV. It’s not widely distributed right now, but if successful it could lead to similar products from other insurers.

When you buy an SCS contract, you invest your money for one, three or five years in an account whose performance is linked to the performance of either the S&P 500 Price Return Index, the Russell 2000 Price Return Index, the MSC EAFE Price Return Index, a gold price index, an oil price index, or some blend of those.

What makes it a “collar” strategy? SCS limits the amount you can lose while capping the amount you can gain. For instance, if you bought a one-year contract and selected the S&P 500 Price Index as your investment option, you could gain up to 10% over the year (but no more) if the index went up. At the same time, you would be protected against up to 10% in losses during the year. If the S&P 500 Price Index lost 8%, your account would lose nothing. If the index lost 14%, you would lose the difference between 10% and 14%, or 4%.

Bullish investors probably won’t like the 10% ceiling on gains. And bearish investors might object that there’s no clear floor to their possible losses. But this product isn’t for pure bulls or pure bears. It’s intended to give risk-averse people an alternative to staying “on the sidelines” and not investing at all.

Written by Kerry Pechter

A recent study from LIMRA showed that 35% of retirees use annuities to finance their retirement, according to USA Insurance’s Insurance Corner.  In the article “Study: Annuities could become larger income stream for retirees,” it is suggested that this percentage is likely to increase rapidly in the future.  Fifty percent of retirees between the ages of 75 and 79 use annuity products to help pay their expenses.  Twenty percent of those under the age of 65 are using annuities, but that’s not to say that they won’t purchase an annuity at some point during retirement.  Immediate annuity rates may be a strong factor in determining which products these retirees use to finance their retirement.

The majority of Americans use pensions and social security as their main retirement income.  But we all know that traditional pensions are becoming obsolete and even if social security stays around, it is not likely to be enough income to carry you through retirement.  Annuities only account for 4% of current retiree income, a number that surprises me.  With excellent fixed indexed annuities and other options out there, I’d expect that 4% to skyrocket over the next few decades.  It’s crucial to protect your assets, which consumers with $250,000 to $499,000 in assets seem to realize more that others.  Half of them already receive annuity payments, many of which are guaranteed for life.  If you have any questions about how an annuity product can finance your future, speak with one of our experts.

Written by Rachel Summit

According to Insurance Networking News’ Justin Stephani, “Annuity Writers Show Significant Growth.”  In a fixed annuity study performed by Beacon Research, they found that despite an annuity rates comparison showing declining interest rates, fixed annuity sales increased 8% quarter to quarter and 3% year to year.  These results from the first half of this year coincide with similar reports from LIMRA and the Insured Retirement Institute.  LIMRA found a 19% year over year increase for total annuity sales, in the period ending June 30.  The IRI reported a 10% increase for the second quarter’s year over year figures and a quarterly sales increase of 4%.

Beacon research was expecting increases in the indexed and income annuity products, especially because indexed annuity cap rates are still desirable compared to other choices.  They were expecting declines in both types of fixed annuities because of low interest rates, but only saw a decline in one of them.  Fixed rate non-market value adjusted (MVA) annuities were the only category to decline, dropping 5%.  Fixed rate MVA’s actually increased 4%, probably because investors seeking higher yields were happy with the slightly higher rates offered.  Income annuities increased 30% and indexed annuities went up 18%.  Western National Life sold more than $2 billion in fixed annuities for the top spot, followed by Allianz and New York Life.

Written by Rachel Summit