History of fixed indexed annuities 

The first annuity of this type was issued February 1995 in the U.S. by Keyport Life, now part of SunLife of Canada. When first introduced, the industry referred to these products as equity index annuities. However, within the last five to six years, the industry has stopped calling these annuities equity index annuities in favor of fixed indexed annuities (FIA). This terminology is a more appropriate descriptor of these products and their core attributes.

Since 1997, sales of fixed indexed annuities have grown ten-fold, with over $30 billion dollars in sales in 2009. In fact, almost 28 percent of all fixed annuity sales in 2009 were fixed indexed annuities. The chart below illustrates this growth. Source: LIMRA and AnnuitySpecs.com  

The lost decade

In simple terms, the "lost decade" is the time period between December 31, 1999 and December 31, 2009 in which the U.S. stock markets experienced a negative return. This "lost decade" created an issue for many Americans who experienced a substantial decline of their principal.

Now, many Americans are more concerned about the preservation of their retirement dollars, not just their retirement dollars' growth. This preservation is increasingly important as Americans approach retirement age, or the time when they need to start taking income from those dollars.

The hypothetical chart below illustrates the difference in accumulation between $100,000 in premium invested in the stock market and $100,000 in premium deposited in a fixed indexed annuity on December 31, 1999. Each account is assumed to accumulate for 10 years and is compared using the most popular index for fixed indexed annuities, the S&P 500. Please note: The index does not include the value of any dividends paid.

As the chart shows, the index was down four out of 10 years in the past decade. The ending balance for the money invested in the stock market is $75,893, while the ending balance for the fixed indexed annuity (with a 6 percent annual cap) is nearly 80 percent higher, at $134,627. The fixed indexed annuity was not affected by the negative dips in the index. Instead, these dollars were protected because in the negative years, zero interest was credited.


FIA values assume a 6% annual cap for period 12/31/1999 - 12/31/2009

Taking income from an account that is not protected from market loss can have adverse side effects at the time the income is needed most. To help protect the income potential of an annuity, many consumers add optional income riders.

Brad Cooper

Money Coach

Cooper Financial Solutions

206 W Columbia Street

Farmington, MO  63640

573-701-0702 w

www.cooperfinancial.com

This article is not intended to give tax or legal advice and is for general educational purposes only. It does not give investment advice. This article is for agent use only. Features and/or riders may not be available in all states or with all insurance carriers and may vary from state to state. Please check the product/rider disclosures and policy for actual terms and conditions. You are encouraged to seek independent legal and/or professional tax advice depending on your client's individual circumstances.