In the past couple of decades, annuities have become more popular with financial advisors and retirees for retirement planning. In many cases, annuities can be a valued part of a well-diversified portfolio. However, there are also many characteristics of annuities that can make them undesirable or even hurtful in retirement planning. Annuities have evolved from simple pension replacement plans and CD alternative types of investments to include complicated investment vehicles that many advisors claim to deliver gains regardless of market performance. Often, it’s the claim of market returns without risk of loss that draws the prospective investor in for a closer look.
There are many types of annuities, each with their advantages and disadvantages. The pension replacement or Single Premium Immediate Annuity (SPIA) and CD Type or Fixed Annuities still exist, as well as what’s called a variable annuity. The annuity that has seen the most growth over the past 20 years is the Equity Indexed Annuity, or EIA. According to LIMRA, “In 2012, indexed annuity sales hit a record high of $33.9 billion.”
It’s interesting that the EIA consistently sees record growth compared the other annuities because they are also arguably the most complex and least understood annuity of them all. In fact, it’s the complexity of the EIA prompted The Financial Industry Regulatory Authority (FINRA) to issue an Investor Alert on EIAs. The Alert states, “EIAs are anything but easy to understand. One of the most confusing features of an EIA is the method used to calculate the gain in the index to which the annuity is linked.”
Read more at the Annuity 123 Blog
Blog written by Written By: Mike Lester, President of Talon Wealth Management in The Villages, FL
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