Six Reasons Why RIAs Are Turning to Fixed and Fixed Indexed Annuities
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Offer competitive interest rates when markets are experiencing persistently low bond yields.
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Accumulation of earnings are tax-deferred, as opposed to CDs, where interest is taxed annually.
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Help provide protection of clients' principal with no direct market participation so there is no downside risk.
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Some allow access to funds without withdrawal charges.
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Outside of pensions and social security, annuities are the only way to create protected lifetime income.
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Can be an option for conservative clients who want to pass on a meaningful legacy to loved ones without the cost and delays of probate.
Why Fixed Annuities?
Fixed annuities do not participate in the stock market and provide a fixed interest rate so your clients know in advance how much their contracts will grow and how much income they will receive. That predictability helps some people feel more comfortable about the stability of their financial plans.
Why Fixed Indexed Annuities?
Fixed indexed annuities offer growth potential linked to the performance of an index without being invested directly in the market, so your clients' principal is unaffected by market declines. This could be a good option for conservative clients who are nervous about how ongoing market volatility will affect their overall portfolios and want to take some downside risk off the table.
Annuities Have Come a Long Way
Many modern fixed and fixed indexed advisory annuities are now built, priced, and tech-enabled specifically for RIAs. And while these annuities are not right for everyone, in the right circumstance, they can be a strategic way to help grow and protect your risk-averse clients' money and create a steady stream of income at a time when that's not so easy to do.
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Pacific Life, its distributors, and respective representatives do not provide tax, accounting, or legal advice. Any taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax advisor or attorney.
Pacific Life is a product provider. It is not a fiduciary and therefore does not give advice or make recommendations regarding insurance or investment products.
Under current law, a nonqualified annuity that is owned by an individual is generally entitled to tax deferral. IRAs and qualified plans—such as 401(k)s and 403(b)s—are already tax-deferred. Therefore, a deferred annuity should be used only to fund an IRA or qualified plan to benefit from the annuity’s features other than tax deferral. These features include lifetime income, death benefit options, and the ability to transfer among investment options without sales or withdrawal charges.
Annuities are long-term contracts designed for retirement. Annuity withdrawals and other distributions of taxable amounts, including death benefit payouts, will be subject to ordinary income tax. For nonqualified contracts, an additional 3.8% federal tax may apply on net investment income. If withdrawals and other distributions are taken prior to age 59½, an additional 10% federal income tax may apply. A withdrawal charge also may apply and a market value adjustment (MVA) also may apply. Withdrawals will reduce the contract value and the value of the death benefit, and also may reduce the value of any optional benefits.
Insurance products and their guarantees, including optional benefits, annuity payout rates, and any crediting rates, are backed by the financial strength and claims-paying ability of the issuing insurance company. Look to the strength of the insurance company with regard to such guarantees because these guarantees are not backed by the independent broker/dealers, insurance agencies, or their affiliates from which products are purchased. Neither these entities nor their representatives make any representation or assurance regarding the claims-paying ability of the issuing company.
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