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Security, Safety Lead to More Record Breaking Annuity Sales


First quarter annuity sales numbers are in, and once again record highs have been reported.  Some financial experts are suggesting a desire for security and safety is the leading cause for the continued increase, according to a recent article from the Pittsburgh Post Gazette.

“Annuity sales in the first quarter are definitely a reflection of a flight to safety,” said Teodor Panaitisor, a research analyst at Limra Secure Retirement Institute.  “Looking at the numbers, we can assume that individuals are looking for protection during periods of volatile markets.”

Up nearly 40% from this time last year, fixed annuity sales reached $38 billion. Overall, U.S. annuity sales improved 17% to $60.8 billion, which is the highest first quarter for total annuity sales in a decade. It’s also the strongest start for fixed annuities ever.

Financial adviser Ashby Daniels attributes the strong growth in part to fear of an unpredictable stock market coupled with the common concern of running out of money in retirement.

“If you are looking for ways to not outlive your income, an annuity can be a great idea,” he stated.

The two main types of annuities, which are contracts between consumers and insurance companies, are fixed and variable. Fixed annuities pay a set monthly amount in exchange for a set investment amount. Variable annuities provide irregular payments based on investment funds managed by the insurance company. Annuities can also be paid out in two different options: immediate and deferred.

These financial tools are gaining in popularity with those either newly retired or nearing retirement due to the guaranteed lifetime source of income that can supplement Social Security or a pension. There is no tax deduction on money put into an annuity, and investment gains are tax-deferred until they are withdrawn. Just like an IRA or a 401k, all payouts are taxed as income.

Just like any investment tool, there are not only pros, but cons for some. For example, annuity payments are taxed as ordinary income, as opposed to long-term capital gains. This impacts those in the top income bracket the most. Annuities also carry a large penalty of 10% or more when funds are withdrawn before reaching the age of 59.5.

Annuities also have a reputation for charging consumers some of the highest sales commissions in the financial services industry. But that hasn’t kept investors away. Owner of Pinnacle Financial Strategies, J. Victor Conrad, stated that with the Federal Reserve Bank raising rates last year, rates of annuity products also have gone up. This makes them more attractive alternatives to other fixed rate investments, like bonds and certificate of deposits.

“Fixed annuities are simply another too that could be used in implementing a client’s overall investment strategy,” he said. He also added that consumer should make sure the annuity they choose is the right fit. “They are far from one-size-fits-all.”

Written by Rachel Summit

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