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* Investors are pushing annuity sales to record levels
* Demand coming when fixed annuity payouts are low
* New products and features are in the pipeline
By Linda Stern
WASHINGTON, Sept 20 (Reuters) ? Not too long ago, if youmentioned the word ?annuity? to investors, their eyes glazedover. But now individual investors, panicked by stock marketselloffs that threaten their retirement dreams, have been doingsomething they have never done before: asking for them.
Paradoxically, they are looking for these retirementinsurance products that come with guarantees at a time whenmany annuity payouts are puny, thanks to ultra-low interestrates.
?This year will indeed be a record-setting one for theindustry,? said Cathy Weatherford, president of the InsuredRetirement Institute, an annuities trade group that is hypingits annual meeting with a ?Get Ready for Boom Time!? call tomembers.
Sales of annuities hit $60.4 billion in the second quarterof 2011, up 10 percent from the second quarter of 2010, thegroup reported.
Savers have been investing in both variable annuities,which allow investors to choose underlying investments and aretypically used to accumulate retirement savings, and fixedannuities, which offer a guaranteed, presetmonthly payment for life and are typically bought during aperson?s retirement years.
While there?s no data on how many annuities are ?sold?because they are pushed by insurance agents and brokers,there?s anecdotal evidence of increasing demand.
In one month, New York Life [NYLIN.UL] exceeded its annualsales goal for a new deferred fixed annuity it unveiled inmid-July. ?Retirees and those near retirement are searching forways to safeguard their nest eggs and increase their payouts.This is fueling a growing hunger for guaranteed income,? aspokesman said.
For years, annuities got a bad rap for high fees, confusingchoices and poor investment performance.
?For the most part, annuities have historically beenoversold,? said Sheryl Garrett, a Kansas City fee-onlyfinancial adviser. ?Right now, they may be being overbought.?
American investors now seem to care more about guaranteesand security than they do about wealth, according to a Julysurvey by SunAmerica Financial Group and demographic researchfirm Age Wave. Some 65 percent of investors said they wantinvestments that are guaranteed not to lose value and 60percent seek to protect their income from market loss.
But Garrett contends that many advisers are too quick tomeet consumer demand for security with annuities when there maybe better solutions.
LOW RATES, LOW RETURNS
The new demand for secure payouts is unsurprising, giventhe rocky returns posted by stocks ? the SP 500 index is down3.3 percent so far this year and has had several scary selloffdays this summer. There?s also minuscule interest paid by bankaccounts and bonds. The benchmark 10-year U.S. Treasury isyielding 1.94 percent, near a generational low.
While low interest rates are driving the hunt for income,those same low rates also mean that immediate annuity payoutsare exceptionally low, too. Buy-high, sell-low consumerinvestors may be racing to the right place at the wrong time.
?The resiliency of second quarter?s fixed annuity sales isremarkable, given that interest rates were below those of theyear-ago or prior quarters,? said Beacon Research President andCEO Jeremy Alexander. ?Though rates have continued to decline,there has been a general flight to safety that may make thirdquarter another strong one for fixed annuities.?
Those low rates can make a significant difference toconsumers.
Because insurance companies back their annuity promises byinvesting in bonds, low bond market rates translate into lowerannuity payouts by hundreds of dollars a month.
In an article titled ?The dangers of buying an annuity wheninterest rates are low,? Thomas Cochrane, founder and publisherof Annuity Digest, offers this example: Robert, a 65-year-oldman, buys a $100,000 annuity when 10-year Treasuries areyielding 5.4 percent and receives a guaranteed monthly payoutfor life of $835. If those Treasuries were yielding 3.4percent, his monthly payout would be $708. And at recent yieldsof 2.29 percent, that same $100,000 would only buy Robert amonthly payment of $633.
Since immediate annuities are rarely indexed for inflation,locking one in at a time of record low rates could hurt theretiree who is counting on that payout to last for decades.After 20 years of 3 percent inflation, Robert would still begetting that same $633 a month, but it would only be buying himas much as $350 in today?s dollars.
NEW SOLUTIONS
The annuities industry is trying to meet investor concernsby refining products. ING USA Annuity and Life InsuranceCompany now allows investors to benchmark their annuities toshort-term interest rates, so they can take advantage of risingrates in the future.
The New York Life plan is a deferred fixed annuity, sosavers can spread out their purchases over years, presumablytaking advantage of rising interest rates along the way.
Retirees who want to lock in immediate fixed annuities cando that gradually, spreading out their purchases so they end upbuying several smaller annuities over years instead of buyingthem all at once.
Consumers should also make sure they aren?t paying too muchfor the warm comfort they think they are getting fromannuities. ?The monthly payouts of the best and worst dealsamong financially secure insurers usually vary by about 20percent. That?s a 20 percent difference in your monthly incomeevery month of your life,? said Bob Carlson, a financialadviser and editor of Retirement Watch newsletter.
Some web sites that offer comparison shopping for annuitiesinclude immediateannuities.com , fidelity.com and incomeannuities.com . Fee-only financial advisers whorecommend annuities often steer clients to low cost versionssuch as those offered by Vanguard and Jefferson National.
Retirement savers may want to wait, not just for interestrates (and payouts) to rise, but for more of these new andimproved products to come on the scene. ?Income products areimproving,? said J. Mark Iwry, a senior Treasury Departmentofficial tasked with helping to formulate Obama administrationretirement policy. ?There is evidence of creativity andinnovation in the market,? he told Reuters in a recentinterview.
Safety-seeking consumers can also take their concerns to afinancial planner who doesn?t sell annuities for a moreobjective opinion. Advisers who bill hourly, for example, don?thave any incentive to sell annuities ? or to talk investors outof them ? as a financial planner who charges a percentage ofassets under management might.
A good planner can compare annuities and review a client?sentire financial picture to make sure that such an insuranceproduct is a good fit in the first place. Some of thosefrightened investors may not need a change in strategy, just anattitude adjustment and a hand to hold.
(Reporting by Linda Stern; Editing by Lauren Young , BethGladstone and Walden Siew )
Tags: annuity
Source: http://settlementsite.net/annuity-personal-finance-record-annuities-sales-tempt-new-investors/
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