There is still a case to be made for buying fixed indexed annuity products. Before they were included in the DOL’s fiduciary rule, FIA sales were sky high and on an eight year streak of increases. Since the rule has been announced, some experts are wary of the future of the indexed annuity market and I’ve seen forecasts predicting more than a 30% sales decline. But fixed indexed annuity products still offer the same benefits, benefits that many retirees find useful and valuable. Financial Planning’s Donald Jay Korn discusses the benefits and future of indexed annuities in the article “Making the case for fixed indexed annuities.”
Indexed annuity sales were up 35% from the first quarter of last year to the first quarter of this year, according to LIMRA’s research. Variable annuity sales were down 18% in the same time frame. Variable sales were at their lowest level in 15 years. Many people wonder how two products that seem similarly linked to the markets have had such different sales results over the past few years. The VA sales decline has been a long time coming because of market volatility, decreased benefits offered and the impending DOL fiduciary rule. This product’s inclusion in the rule was not a surprise. While volatile markets have impacted variable annuity products, they haven’t hurt indexed annuities in the same way because they are linked indirectly to equities. Fixed indexed annuities can be beneficial to conservative investors, as long as they understand the complexities associated with them.
Financial experts have very different opinions about fixed indexed annuities. One expert interviewed for the article says that he recommends clients who already have fixed indexed annuity products keep them because they would be a better deal than taking the money out and putting it into a new annuity. But he warns against the interest rate caps and surrender charges when buying a new indexed annuity product. Your upside potential is often capped with an indexed annuity, but your downside potential is capped as well. This downside protection is a significant benefit of fixed indexed annuity products and one that puts them at an advantage to variable annuity varieties. Some indexed annuities offer guaranteed 3% growth even if the markets take a dive.
The closer you get to retirement, the more you are searching for guaranteed income sources. More than half of people buying an indexed annuity opt for an income rider like a Guaranteed Lifetime Withdrawal Benefit. This GLWB pays you lifetime income for as long as you live once you have annuitized. Fixed indexed annuities protect your premium, offer a minimum guaranteed return with the potential for higher returns, and guarantee lifetime income. Despite these benefits, it’s important to know the drawbacks of indexed annuities as well before making a purchase. Although you are participating indirectly in the markets, you will not receive stock dividends. Fees can be higher and caps and participation rates are confusing to some investors. You really have to do your research and understand the details of your particular annuity product.
Most experts believe that both variable and fixed indexed annuity sales will be down for the next couple of years because of the DOL’s increased standards and BICE guidelines. They do believe that the industry will adapt to the new rules and that sales could rebound as early as 2018. But some experts don’t think that indexed annuities will see the forecasted decline. Fixed indexed annuities still offer the income guarantees and downside protection that so many consumers are seeking during this market volatility.
Written by Rachel Summit