Retirement Planning Saving for Retirement

LIMRA: Conditions Are Right for Indexed Annuity Sales to Flourish

Commentary February 28, 2012 at 10:23 AM
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Building a retirement nest egg sufficient to last a lifetime continues to be a challenge for Americans. Two of the biggest barriers to asset growth today are persistent volatility in the equity market and interest rates that are mired at historic lows. Neither shows signs of easing any time soon.

Worse yet, we have no control over these factors. This is the world we live in. But we do have control over how we react to them.

For some looking for safer investments, indexed annuities are worth a closer look. Such products can offer complete safety of principal, a guaranteed minimum interest rate and the opportunity to share in market gains, all of which helps mitigate the current challenges. As a result, indexed annuity products enjoyed record sales in 2011, totaling $32.3 billion.

And it's quite possible we will continue to see significant sales growth of this product over the next few years. There are good reasons for a bullish outlook. 

  • First, safety has become the key issue for those saving for retirement since the market collapse of 2008-2009. More Americans don't want to put their principal at risk.
  • Secondly, expectations on yields have changed, especially in light of the Federal Reserve's recent announcement that it will continue to keep interest rates at virtually zero through the end of 2014. Yet consumers are looking for something better than today's anemic CD rates.
  • And lastly, a broader issue that has always confounded those saving for their retirement is how to deal with the cyclical ups and downs of the equity market. Ideally, they want to avoid the downside while taking part in the upside.

The ability of the indexed annuity to negotiate the hazards of today's marketplace is further evidenced by the increased utilization of this product by advisors. Those carriers that have already included the indexed annuity in their offerings are directing a lot or their resources going forward to refine what they have on the shelf and to develop new indexed products. And other companies that have focused solely on the variable annuity market are joining the game. At least four entered the index space in 2011.

As new iterations become available and carriers ramp up their marketing efforts, the advisor channel has the potential to become a major source of distribution for these products. While the indexed annuity is only one of many solutions available to meet the specific retirement goals of your clients, it is an option that consumers may find attractive in the current environment.  

Indexed annuities are complex, with an array of choices that must be explained to the client. But for the right client—where suitable—perhaps indexed annuities are worth a second look.

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