The annuity industry is evolving as our needs and the economic climate both change. Some of the things about annuity products that people most often dislike are actually falling by the wayside. Those annuity benefits that everyone desires are becoming easier to obtain. In Stan Haithcock’s Marketwatch article, “Hate annuities? 7 reasons you might change your mind,” he says that the industry is changing for the betterment of consumers. Each year, there are more $200 billion worth of annuities sold in the U.S. But with an influx of Baby Boomers nearing retirement and a strong demand for guarantees, there is a lot of room for the annuity industry to grow. That growth will come with some major changes.
Annuity commissions are decreasing, as many of them should. Wells Fargo was the first company to ask for lower commissions tied to fixed indexed annuities. Agents should be compensated fairly, but certainly not at the expense of value added into the products. The complexity associated with some annuity products will be replaced by simpler, more easily understood products. There are 15 different types of annuities, but most annuity sales are from variable and indexed products. Mr. Haithcock believes that these more complex annuities will represent the minority of annuity sales in the future. They will always be around because of the unique benefits that they offer though. He forecasts a shift to lower commission, more easily understood annuities with no annual fees. These include fixed annuities, longevity annuities, and single premium immediate annuity products.
The article also says that the number of annuity agents will drastically decrease, much like the number of travel agents has over the past few decades. The author predicts that the majority of annuity sales will be directly from the insurer to the consumer. This makes finding unbiased annuity information even more important than ever, so Annuity FYI will continue to offer up to date and valuable annuity information. It’s rather surprising that annuities are still regulated on the state level, but federal oversight is likely to come soon. Variable annuities are regulated by the SEC because they are defined as securities, but it won’t be long before indexed annuities and the other types are regulated by the federal government as well. This is a good thing for consumers because unethical sales practices will be nearly eliminated.
Everyone loves the guarantees offered by annuities, but many people still don’t want to purchase one. Contingent deferred annuities guarantee income through their attachment to stock and bond portfolios, but your money remains liquid. These annuities that offer income guarantees without the annuity commitment will likely increase in popularity. The July 1 government ruling allowing Qualified Longevity Annuity Contracts (QLAC) in retirement plans will be the driving force that makes annuities just as commonly owned as mutual funds. They will soon be seen in most portfolios to help guarantee an income stream to replace the pensions of the past.
Deferred income annuities will be the top selling annuity within five years, or at least Mr. Haithcock believes so. We just published a new article about how the new deferred income annuities are the one true path to income, so we wouldn’t be surprised to see their popularity continue increasing either. These DIAs, or longevity annuities, don’t have an annual fee and offer a lot of flexibility when it comes to creating income for you and your heirs. They are one of the best ways to create lifetime income by transferring your longevity risk to an insurer. By using a DIA in your retirement plan as a QLAC or outside of your workplace retirement savings, you are setting yourself up for a successful financial future. Stay tuned to Annuity FYI to see if Mr. Haithcock’s seven annuity predictions hold true and to find out the most important up to date information about the annuity industry.