‘Quest for Certainty’ is Growing Annuity Sales
The appeal of fixed income annuities is growing, according to the not-for-profit organization Insured Retirement Institute (IRI).
Figures released recently by IRI indicate that fixed annuities set a new sales record in the third quarter of 2012. Sales of fixed income annuities increased to nearly $2.4 billion in the third quarter, up 3.8% from $2.3 billion in the second quarter and up 6.7% from $2.2 billion in the third quarter of 2011, according to IRI.
“The consumer demand for income annuities has grown steadily during the past two years as consumers seek to generate a guaranteed stream of retirement income,” says Cathy Weatherford, president and CEO of IRI.
Weatherford, quoted on the IRI website, suggests the renewed interest in fixed income annuities stems in part from a desire for certainty in a market environment that is turbulent.
She notes a recent U.S. government study indicated that people were attracted to annuities because they offer predictable income that can reduce the uncertainty that comes with managing investments and drawing down assets.
“I believe this quest for certainty is helping keep industrywide sales relatively steady, despite the current low interest rate environment,” comments Weatherford.
The appeal of fixed income annuities in the current low interest rate environment may be because annuity payouts look attractive compared to more conservative alternatives. This is especially true for deferred income annuities, which were major contributors to the record-breaking third-quarter sales figures.
“Despite or perhaps because of low interest rates to some extent, income annuity sales are growing,” says Jeremy Alexander, president of Beacon Research Inc., an organization that provided data for the study.
Should you get on the annuity bandwagon?
Your advisor can help you decide whether an annuity is an appropriate investment for you based on your individual financial circumstances and goals.
Annuities Play Two Roles in Your Retirement Plan
In today’s challenging economic and market environments, annuities play two important roles. If you’re planning for retirement, it’s important you understand these roles.
Most annuity contracts are issued by life insurance companies. You pay the insurance company a sum of money and it provides you with a steady stream of income for either a fixed period or life.
Much like life insurance, annuity contracts are based on risk pooling.
The insurance company doesn’t know who will live for a long time and who won’t, so it spreads the risk among all annuitants. Some will live longer than expected; others will die sooner than expected. That should keep the pool of assets steady.
So what are the important roles of annuities?
First, annuities are the only financial instruments available today (other than Social Security and defined benefit pension plans) that can guarantee you a lifetime stream of income in retirement.
In addition to giving you the peace of mind that comes from knowing you won’t outlive your savings, annuities provide another important benefit: by adding one to other retirement vehicles, you increase your current income. That’s important, because that means annuity payments can be used to cover at least some of your essential living expenses.
You may want to look at an annuity as life insurance in reverse. Life insurance protects your loved ones from the financial risk resulting from your premature death; an annuity protects you from the financial risk that would result from living longer and outliving your savings.
Recipe: Citrusy Quinoa with Grilled Asparagus
- 1 cup quinoa, rinsed and drained
- 2 oranges and 1 lime
- 1 teaspoon cinnamon
- 1/4 tsp salt
- 2 cups water
- 1-2 tablespoons finely chopped parsley
- 1 tablespoon finely chopped mint
- 2 pounds green asparagus, woody ends snapped off
- 2 tablespoons olive oil
- Salt to taste
Zest 1 orange and 1 lime; reserve lime. In a medium saucepan, combine quinoa, zest, cinnamon, salt and water.
Bring to a boil, cover and reduce heat to low. Cook for 20 minutes. Remove from heat, leaving the lid on. Steam for 10 minutes. Fluff with a fork. Squeeze lime and add juice, chopped parsley and mint. Slice orange into half-moons.
Preheat the grill or broiler; brush asparagus with olive oil. Sprinkle with salt. Broil or grill, turning occasionally, until the asparagus can be pierced easily with a knife and is bright green, about 5 to 10 minutes.
Serve asparagus spears with the quinoa and orange slices.