Gains in indexed annuities are making some financial planners take notice, with first-quarter sales jumping 14 percent compared to last year. Overall, annuity sales are currently slumping, but indexed annuities are turning into a hot commodity.
According to The Insured Retirement Institute, U.S. annuity sales in the first quarter of 2012 dropped 2.5 percent from the previous quarter and variable-annuity sales were down 2.7 percent from the fourth quarter; but variable-annuities’ net assets reached an all-time high of $1.61 trillion during the first quarter, a 7.2 percent increase from the previous quarter’s $1.5 trillion.
That’s because older customers are discovering that annuities can provide the safety and guarantee of principal and credited interest more than a certificate of deposit (CD) can. With indexed-annuity plans, customers receive a minimum guarantee in addition to participating in some of the index gains, but with none of the losses.
The principal is ensured. Unlike most securities where your account balance can fluctuate due to market performance, premiums deposited into a fixed index annuity are guaranteed to never go down due to market dips. The returns might be higher than traditional products such as CDs, money-market accounts and bonds but not as high as market returns.
“We are seeing that industry trend. Fixed rates are low and sales are down,” said John D. Olerio, a senior vice president at Webster Investment Services, part of Webster Bank. “We are seeing a lift in indexed annuities but it is still not a major product line, at least not for us. It is something that we are seeing more interest in and it’s something that people are at least considering as an alternative [to traditional retirement plans], depending on the amount of risk they are willing to take. It’s an increasing portion of the annuities pie.”
In an environment of low rates and an unstable Dow Jones Industrial Average, clients are looking for safety guarantees while still maximizing profit.
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