A milestone for fixed index annuities
February 18, 2015 by Jim Poolman
Despite the economic growth that characterized most of the 1990s, economic volatility darkened the bond and stock markets in 1994.
Traditional financial options suddenly looked less dependable and consumers were hungry for a product that provided a certain degree of growth, but retained its principal in times of economic turbulence. This volatility led to the introduction of a new retirement product—Fixed Indexed Annuities (FIAs). With a guarantee for lifetime income and growth with protection from downfalls, FIAs grew in popularity.
This week, the Fixed Indexed Annuity marks its 20th anniversary and while a lot has changed in more than two decades since its introduction, FIAs continue to represent a growing part of Americans’ retirement financial plans.
Since 1995, millions of consumers have purchased roughly $400 billion in FIAs, according to a national financial research and consulting firm. And as the economy continues its recovery from the Great Recession, Americans increasingly flock to FIAs to protect their nest eggs and ensure a dependable income stream during retirement.
However, the future of FIAs is changing.
First, the typical customer is getting younger. Since FIAs were introduced, Baby Boomers have become a large segment of the market, but with the effects of the Great Recession still lingering, FIAs are now increasingly appealing to younger generations, even millennials. Coming to the job market during the economic downturn, many millennials understand the need for financial security both today and in the long term. Indeed, a Wells Fargo survey found that more than a third of Millennials expect to receive 0% of their retirement income from Social Security, and another 21% say they have no idea what to expect. Additionally, many experts expect millennials to live 10 to 15 years longer than their parents, increasing their desire for a balanced, long-term financial plan. As millennials advance in their careers and begin to look for retirement options, the purchase point for FIAs is likely to shift to younger demographics.
Second, FIAs are becoming better known among everyday consumers as traditional retirement options like pensions are dwindling. The time when the majority of Americans held a single job for their entire career and then retired comfortably on a healthy employer-sponsored pension is long gone. As Towers Watson, a business consultancy, found, in the last 15 years, the portion of the U.S.’s largest companies offering defined-benefit pensions to new workers has fallen from 60 percent to 24 percent. Further, Americans are switching jobs more than ever before and employers are looking for new retirement options to offer employees. In this changing retirement environment, FIAs will increasingly become a go-to option for those looking to finance a balanced, secure retirement.
Lastly, FIAs will be more heavily adopted by women ages 35-45 as spousal retirement benefit supports dwindle and companies will continue discovering innovative ways to determine new indexes and annuities that offer consumers greater choice and flexibility in their financial planning.
It’s been a strong, exciting 20 years for FIAs and the future is bright. Americans who may have never heard of an FIA in the past will begin considering them at younger ages, more women will consider adding FIAs to their retirement plans and companies will continue to develop new products that reach wider audiences and satisfy the widespread desire for a secure and comfortable retirement.
