Personal Finance: Record Annuities Sales Tempt New Investors
Not too long ago, if you mentioned the word "annuity" to investors, their eyes glazed over. But now individual investors, panicked by stock market selloffs that threaten their retirement dreams, have been doing something they have never done before: asking for them.
Paradoxically, they are looking for these retirement insurance products that come with guarantees at a time when many annuity payouts are puny, thanks to ultra-low interest rates.
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"This year will indeed be a record-setting one for the industry," said Cathy Weatherford, president of the Insured Retirement Institute, an annuities trade group that is hyping its annual meeting with a "Get Ready for Boom Time!" call to members.
Sales of annuities hit $60.4 billion in the second quarter of 2011, up 10 percent from the second quarter of 2010, the group reported.
Savers have been investing in both variable annuities, which allow investors to choose underlying investments and are typically used to accumulate retirement savings, and fixed annuities, which offer a guaranteed, preset monthly payment for life and are typically bought during a person'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 annual sales goal for a new deferred fixed annuity it unveiled in mid-July. "Retirees and those near retirement are searching for ways to safeguard their nest eggs and increase their payouts. This is fueling a growing hunger for guaranteed income," a spokesman said.
For years, annuities got a bad rap for high fees, confusing choices and poor investment performance.
We wanted to establish a bit of extra income. There was a good recommendation about ImmediateAnnuities.com on CNN. We also liked that we could see excellent reviews about them on Google. They were very thorough from our first inquiry to when we decided to buy our annuity from Mass Mutual. They always answered our questions promptly and followed up with the insurance company, too. We have been receiving our monthly payments since last November and couldn’t be happier. What more can we say?
"For the most part, annuities have historically been oversold," said Sheryl Garrett, a Kansas City fee-only financial adviser. "Right now, they may be being overbought."
American investors now seem to care more about guarantees and security than they do about wealth, according to a July survey by SunAmerica Financial Group and demographic research firm Age Wave. Some 65 percent of investors said they want investments that are guaranteed not to lose value and 60 percent seek to protect their income from market loss.
But Garrett contends that many advis