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New Study: Which Annuity is Right For You?

A study recently conducted by Cannex, an independent company that facilitates the efficient and accurate exchange of pricing and analytics for annuity and bank products between financial institutions, found that there are a number of factors that determine which annuity provides the most income in retirement. Researchers compared income from four types of annuities: single premium immediate annuities, deferred income annuities (DIAs), variable annuities and fixed indexed annuities (FIAs) in the study, Guaranteed Income Across Annuity Products: Withdrawal Guarantees Compete with Income Annuities.

Researchers made the following discoveries, according to a recent article from ThinkAdvisor:

  • For those planning to draw immediate income, SPIAs were found to provide the highest income guarantee.
  • When based on age, the study found that a variable annuity with guaranteed income may generate the highest annual payments.
  • Individuals who wish to start drawing down money in five or 10 years, the study found a fixed indexed annuity provides a greater guaranteed stream of income over a deferred income or variable annuity.
  • For women, the difference between a fixed indexed annuity and a deferred income annuity is great because DIA benefit payments are lower based on longevity expectations. The longer the wait before income is collected, the greater the benefit for women when choosing an FIA versus a DIA.

“Based on a $100,000 premium investment in a DIA at 65 years old, a woman of average projected longevity would receive, after 10 years deferral, around $11,700 in annual income, versus approximately $12,900 for a man,” the report states.

On the contrary, an FIA could generate as much as $14,313 of annual income regardless of gender, the report adds.

“Using our quantitative tools to compare different types of annuities across prducts and providers on an apples-to-apples basis, the study reveals a complex story – the highest guaranteed income product varies significantly by client and when income begins,” said Tamiko Toland, head of annuity research at Cannex.

“There are many factors that go into the selection of an annuity. Income generation is not the only one, but it is central to their value proposition and advisors need to rely on real analytics, not traditional perceptions or best guesses of how guarantees work to best serve their clients.”

In other industry news, the use of variable annuities with guaranteed living benefit riders has grown over the last several quarters following six consecutive quarters of decline. Industry experts believe that the death of the Labor Department’s fiduciary rule is to blame.

GLBs were introduced in the late 90s with the riders becoming more popular in in the early 2000s. LIMRA states that these products ease consumers’ concerns about market volatility after the 2001-2002 downturn. While the sales of VAs with GLBs dropped significantly from 2015 to 2017, VA sales without a GLB have remained steady.

When discussing the introduction of the DOL’s fiduciary rule in mid-2015, Todd Giesing, director of annuity research at LIMRA Secure Retirement Institute, had this to say: “It was apparent fairly quickly that variable annuities, particularly variable annuities with guaranteed living benefits, were going to be negatively impacted. The impact could clearly be seen as sales bottomed out in the third quarter of 2017, immediately preceding the initial implementation” of the rule.

He added that the decline “was caused by tentativeness from distributors and advisors, and the uncertainty of operating in a post fiduciary environment.” With the rule’s demise, “this tentativeness has faded,” and the “bounce-back in VA sales with a guaranteed living benefit can be attributed to pent up demand for guaranteed lifetime income solutions, combined with the fact some of the top annuity manufacturers are enhancing their guaranteed living benefit features, as interest rates have improved.”

Written by Rachel Summit

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