COLLEGE PLANNING | ESTATE PLANNING | INSURANCE | INVESTING | PORTFOLIO SPOTLIGHT | REAL ESTATE | RETIREMENT | TAX PLANNING
Retirees Rally Around RILAs
Registered index-linked annuities have benefited from Fed moves and demographic trends .
By Ben Mattlin
ONE OF THE MOST POPULAR ANNUity innovations over the past two decades , the registered index-linked annuity ( RILA ), has been a top seller almost since it was introduced to the market in 2010 . Last year , these products saw sales of more than $ 47 billion , an increase of 15 % from the prior year and a new record high , according to Windsor , Conn . -based data tracker LIMRA . And in the first half of this year , their sales jumped another 41 % year-over-year to nearly $ 31 billion . LIMRA anticipates they are on track to exceed $ 50 billion in sales this year .
But with equity performance at historic highs , and interestrate cuts likely , how long can the RILA wave continue ? RILAs are “ buffered ” variable annuities , pegged to a basket of stocks , such as the S & P 500 , but constructed to cap upside performance at a predetermined percentage and limit downside risk , also at a preset percentage .
“ They can provide greater opportunity for upside growth potential relative to most fixed annuities or fixed-income strategies , while also offering different buffer protection options that investors and their advisors can use to help manage for market volatility and downside risk ,” says Scott Gaul , head of individual retirement strategies at Prudential in Newark , N . J .
Annuity providers like Prudential are certainly bullish on the category . They keep coming out with new variations to entice new investors , such as enhancements that let clients adjust cap and floor levels , providing RILA owners with the flexibility to “ adjust protected growth and lifetime income levels as their needs and goals change over time ,” says Gaul .
That helps retirees feel a sense of control over their financial futures , he adds .
RILAs are similar to another popular type of annuity , the fixed-index annuity , which also caps upside potential in exchange for limiting downside risk . Fixed-index annuities ( which the industry also calls “ FIAs ”) are linked to specific market indexes , with preset payout calculations separate from index performance . While RILAs are registered securities products , with fluctuating returns , fixed-index annuities are fixed insurance products . That means the RILAs can enjoy higher returns than fixed-indexed annuities , but also assume more risks .
David Blanchett , the head of retirement research and portfolio manager for PGIM DC Solutions , a unit of Prudential Financial in Lexington , Ky ., calls RILAs the next step in the evolution of fixed-index annuities , which he says provide strong downside protection but relatively limited upside . “ RILAs allow investors and advisors to allocate to strategies that span a much wider risk / return spectrum ,” he says .
He says that RILAs are not only taking market share from other annuities but also , because of their flexibility , drawing in customers who might otherwise reject annuities altogether . “ RI- LAs have the opportunity to attract a new segment of investors to annuities ,” Blanchett says .
SEPTEMBER 2024 | FINANCIAL ADVISOR MAGAZINE | 49