The Rise of the Indexed Annuity

  • Originally published February 16, 2011 , last updated May 27, 2016

Over the course of the 20-year bull market run from 1980 to 1999, a lot of advisors pushed their clients toward aggressive strategies like systematic withdrawal plans for their retirement income. These plans promised high returns when times were good, but offered no protection when the market went bad. A lot of retirees have learned this lesson the hard way following two recessions this decade.

The result has been an ongoing exodus from the more aggressive side of the spectrum shown above to the relative safety of the middle. One indicator of this shift in investor attitudes has been fixed annuity sales, which have soared since the recession hit last year. LIMRA reported a 79 percent increase to close 2008 and a 74 percent jump in the first quarter of 2009.

Indexed annuity sales were up heavily as well, jumping to $8.3 billion in the second quarter of 2009, up 21.2% from the same period last year. As compared to the previous quarter, sales were up 18.3%.

So why are consumers gravitating toward indexed annuities? Perhaps it is because many consumers and their advisors have recognized that fixed indexed annuities — despite what some in the securities industry or the media might say — offer three unique attributes that no other savings or investment vehicle offers, and they’re taking advantage.

1. FIAs offer a portion of the market’s upside potential while protecting principle.

2. FIAs provide a level of guarantee against bond defaults that can’t be achieved with either
individual bonds or bond mutual funds.

3. FIAs offer partial liquidity with some measure of market gains. It is difficult to overestimate the value of this, yet critics of FIAs often ignore the free withdrawal provisions of deferred annuities.

In short, high-quality FIAs issued by reputable companies provide strong benefits for those who wish to participate in a portion of market gains, but whose risk tolerance makes them uncomfortable with sustaining losses.

Even given all of that, some still find the use of FIAs controversial. But when you look at the facts, it is difficult to argue that a plain vanilla FIA with a short surrender period could not be a valuable part of an overall retirement plan. We welcome your comments on this topic and the opportunity to further make the case for FIAs as a viable tool for retirement income planning.

To learn more about using Fixed Indexed Annuities as part of your clients’ overall retirement income plans, call 1-877-645-4939.