RETIREMENT
To be sure , registered index-linked annuities aren ’ t right for every client . But experts insist they can be a key ingredient in sound retirement planning . As equitybased investment products , they would be part of a client ’ s equities allocation , advisors say . Fixed annuities , on the other hand , would be in the same category as CDs and bonds .
The profile of the ideal client for a RILA is specific , advisors say , yet it could apply to a lot of people — namely retirees and near-retirees who are worried that the income from their assets won ’ t keep up with inflation . They may also be
risk-averse and acutely concerned about major market corrections , according to Frank O ’ Connor , vice president of research at the Insured Retirement Institute in Washington , D . C .
“ RILAs can give them some protection against market losses and some potential for growth ,” he explains . “ They allow investors to continue to participate in future potential growth in stocks while protecting the significant gains they ’ ve made .”
Indeed , advisors say that mounting market jitters , contrasted with the income certainty of annuities , has been a strong driver of all annuity sales . According to LIMRA data , the sales figures for all such products last year surged 23 % year-overyear to a record $ 385.4 billion . The lion ’ s
Advisors say that mounting market jitters , contrasted with the income certainty of annuities , has been a strong driver of all annuity sales . share of that came from $ 286.6 billion in sales of fixed annuities ( those products , which have directly benefited from higher interest rates , also set a record ).
“ Rising interest rates have made annuities very attractive to a larger group of investors ,” Bryan Hodgens , head of research at LIMRA , said in a statement when the figures were announced last March . Rising interest rates push annuity payout and crediting rates higher , but of course they also make the yield on other fixed-income products higher too .
Another factor in the growing popularity of annuities in general is the aging population , analysts say . “ In addition to favorable interest rates , demographics have also played a role in the surge of fixed-rate deferred sales ,” Hodgens said in his March statement , pointing to the ballooning number of Americans at retirement age .
That ’ s what makes the popularity of RILAs , which provide less certainty than fixed annuities , seem surprising to some market watchers . To date , they are the only category of variable annuities to keep posting quarterly sales records . But experts say the popularity of RILAs and fixed annuities is not a mixed message .
“ The extra layer of protection that RILA products provide has made them more appealing for investors ” than tra- ditional variable annuities , says Teddy Panaitisor , assistant research director at LIMRA in South Windsor , Conn . The choice between fixed-annuity products and RILAs is about how wary of risk an investor is , he says . It also depends on the purchaser ’ s overall financial goals .
RILA buyers may be somewhat riskaverse , but they ’ re also more aggressive than fixed-annuity buyers , say industry experts — most are not as cautious as older retirees . “ RILA buyers are among the youngest annuity buyers , with an average age around 61 ,” Panaitisor observes . “ These are people who are still looking for accumulation opportunity to supplement their retirement nest egg .”
This means RILA owners might be around for a relatively long time , something the advisors they turn to might keep in mind . LIMRA expects RILA sales to keep growing at least through 2026 , Panaitisor says , regardless of a projected change in interest rates . As proof of that momentum , he notes that the number of carriers of RILA products has leapt by some two-thirds over the past four years . “ Currently , there are roughly 20 carriers in this space . In 2020 , there were 12 carriers .”
At one of them , Jackson National Life Distributors in Franklin , Tenn ., senior vice president of product management Matt Lemieux puts the industry ’ s bullish view this way : “ Annuity products in general are sensitive to interest rates , so any meaningful decline will most likely impact all annuity product lines . But what won ’ t change are the broad mix of investor needs and the insurance industry ’ s continual pursuit of innovation to meet them .”
The ability of policy buyers to pick and choose levels of protection and degrees of market exposure is what makes RILAs attractive to investors across a broad range of risk tolerance and investment horizons , he emphasizes .
But the flexibility and customization also make them appealing to advisors , he adds . “ The relative simplicity of the product design also allows financial professionals to more easily assess and position the potential value to their clients .”
50 | FINANCIAL ADVISOR MAGAZINE | SEPTEMBER 2024 WWW . FA-MAG . COM