The National Association for Fixed Annuities (NAFA) has declared 2014 “The Year of the Fixed Annuity” in an article for their Annuity Outlook Magazine. Their president, Kim O’Brien, likened the outlook for fixed annuities to the Chinese New Year calendar character, the Horse. 2014 is the year of the Horse in Chinese tradition, symbolizing constant effort to improve. O’Brien says that the fixed annuity industry does just that by trying to improve peoples’ lives through annuity guarantees, protection, and certainty. NAFA works hard to educate and inform the public about fixed annuities and to make sure the industry is understood and ethical. The three industry trends causing this optimism from NAFA are momentum, uncertainty and opportunity. These trends point towards a great year for fixed annuities.
Although sales of fixed annuities were down in the first quarter of 2013 when compared to the year before, sales really picked up during 2013. Second quarter sales were better for fixed indexed and deferred income annuities. By the third quarter, sales of every type of fixed annuity were up compared to the previous year. After the specific increases shown in the second quarter, it became apparent that income benefits are the big draw of fixed annuities right now. Whether it be the deferred income annuity or the income benefit rider, guaranteed lifetime income is drawing consumers to fixed annuities. More channels are embracing indexed annuities now, which is also increasing momentum. Banks have sold 52% more indexed annuities this year to date and broker-dealers had a 35% increase in indexed annuity sales last year. More people have understanding of the benefits of these products through marketing, promotion, and alliances. Slightly rising interest rates have also helped fixed annuity sales. Rising rates in the third quarter of 2013 helped fixed annuities reach sales of $24 billion, their highest level since 2009. These three factors are likely to help the forward momentum of fixed annuities.
Americans are worried about retirement and this uncertainty is helping the fixed annuity industry. NAFA says that the four big challenges in retirement are longevity risk, taxation of social security, healthcare costs, and the combination of increased debt and less savings. We’re living longer than our Grandparents did and we don’t have the guaranteed pensions to finance our retirement. Uncertainty about our longevity is a big draw for annuity products. According to a recent survey, 70% of Americans plan to work in some form during their so-called retirement years. You have to have Medicare in order to be eligible for social security benefits. Medicare expenses have been inflating steadily, premiums are taken from your social security, and the cost of living adjustments are nearly flat. This is a tricky financial situation for retirees. People over the age of 60 spend 33% of their money on health care expenses. With uncertainty related to the Affordable Care Act and overall health issues, there is a lot of worry associated with healthcare costs for retirees. Americans have been steadily increasing the amount of debt they carry compared to their income level for the past 60 or 70 years. Carrying more debt is making it harder to save for retirement and causing Americans uncertainty about how they will pay for anything in the future. All of this uncertainty is frightening, but annuities can help take away the fears and ease Americans’ minds in retirement.
The opportunity created by the current environment is wonderful for the fixed annuity industry. NAFA plans to work hard in 2014 to make sure that fixed annuities are meeting the needs created by uncertainty in life. Each committee in the organization is trying to capitalize on the opportunities and protect the industry from negative actions or activities. NAFA committees listed their priorities and goals for the year. Fixed annuities are an important tool to help address the uncertainties created when people approach their retirement years. These come from our personal risks, government policies, and national financial trends. If you think the lifetime income from fixed annuities is right for you, speak with an annuities expert about your personal portfolio.
Written by Rachel Summit