A Banner Year for Annuities

A Banner Year for Annuities

July 11, 2022

Do you hear that? It’s the sound of annuity salespeople everywhere cashing their bonus checks. Projected annuity sales for 2022 are in the neighborhood of $280 billion. That will surpass the previous all-time high of $265 billion set in 2008.

Annuities sales increase when the market is unsettled and interest rates are rising. But are all those billions of dollars chasing sound financial planning decisions?

Let’s be clear: An annuity is an insurance product. Period. It is not an investment.

Unfortunately, annuities are often billed as investment products first and risk management tools second. We encourage clients to view them the other way around.

Annuities and insurance each seek to cover opposing sides of the longevity-risk coin. Where life insurance hedges the risk that you’ll die too soon for your financial plan to succeed, an annuity hedges the risk that you’ll live too long for your assets to support your desired lifestyle.

When we discuss annuities with clients, there are several questions we always consider before making a move:

Will an annuity truly serve your needs? An annuity may be what you need if you are legitimately at risk of outliving your assets. (Again, it’s an insurance product.) As an investment, it doesn’t hold up well compared to traditional investment vehicles (mutual funds, stocks, bonds, etc.). Generally, if you are not in danger of outliving your assets even in the most volatile of market conditions, an annuity will only add complexity to a financial plan.

What are the total costs and fees associated with this product? One disadvantage of annuities is that they can be expensive. Costs to purchasers can include things like mortality and expense fees, administrative fees, investment management fees and fees for optional riders.

What is the surrender period? This is how long you must wait before incurring large fees on withdrawals.

What annuity income payment options do you have and when? This will depend on whether an annuity is immediate or deferred.

There are other important questions as well: What is the agent’s commission on the product? Does the insurance company waive withdrawal charges if you face a medical crisis?

The bottom line is that annuities aren’t inherently good or bad. Our job is to help determine if the pros of guaranteed income would outweigh the complexity, costs and risks of choosing annuities.

 

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About Adviser Investments

Adviser is a full-service wealth management firm, offering investment managementfinancial and tax planningmanaged individual bond portfolios, and 401(k) advisory services. We’ve been helping individuals, trusts, institutions and foundations since 1994. Adviser Investments and its subsidiaries have over 5,000 clients across the country and over $8 billion in assets under management. Our portfolios encompass actively managed funds, ETFs, socially responsible investments and tactical asset allocation strategies, and we’re experts on Fidelity and Vanguard mutual funds. We take pride in being The Adviser You Can Talk To. To see a full list of our awards and recognitions, click here, and for more information, please visit www.adviserinvestments.com or call 800-492-6868.

 


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