All About Retirement & Insurance
2022 Was Good For Annuities; 2023 Stands To Be Better
Eric Rasmussen (FA-MAG.COM)
The annuity industry has two gusts of wind at its back going into 2023: a higher interest rate environment and the new opportunities provided by the SECURE Act.
That was the takeaway of a CFRA report released yesterday.
Total individual annuity sales jumped 22% in 2022 to $310.6 billion, said the report, written by Cathy Seifert, vice president at CFRA Research. Fixed-annuity sales were a big part of that increase, after they saw a 61% surge in sales. However, variable annuities dampened the party a bit with their 18% sales drop.
“CFRA attributes this [total annuities] strength to a rise in interest rates and heightened market volatility, which has propelled investors to seek stability in the form of fixed and indexed annuities,” the report said. “We expect this trend to continue and forecast a 14% rise in total annuity sales in 2023, driven by an expected 25% rise in fixed-indexed annuities, 20% growth in fixed-deferred annuity sales, and flat variable annuity sales.”
The firm expects fixed-index annuities to be the growth leaders in 2023 and 2024. “We forecast fixed-indexed annuity sales will rise by 25% in 2023 to around $99.3 billion and advance another 11% in 2024 to around $110.2 billion.” Total annuity sales should rise 14% in 2023 to $354.1 billion and by 10.7% in 2024, to $392.1 billion, CFRA said.
Fixed-index annuities are hybrid products that offer contract holders both a steady income stream and some participation in market performance, as well as return guarantees. They accounted for 26% of U.S. annuity sales in 2022, according to CFRA.
Variable annuity sales will likely remain flat even though they are an important chunk of the industry—representing 67% of total annuity assets at the end of 2022. Variable annuities offer a return based on underlying securities and accounted for 33% of 2022 sales.
The demand for annuity products usually increases after periods of difficult equity markets, said CFRA.
The Setting Every Community Up for Retirement Enhancement Act of 2019 and its more recent follow-up, SECURE 2.0., have broken down barriers that existed for annuities in the retirement space and led to their inclusion as investment options in retirement accounts.
“The SECURE Act … allowed annuities to be offered as investment options within 401(k) plans,” CFRA said. “Previously, employers held the fiduciary responsibility for ensuring these products were appropriate for employees’ portfolios. Now, the burden falls on annuity providers to offer the appropriate investment choices.
“The SECURE 2.0 Act, signed into law in late 2022 and effective January 1, 2023, tweaked some of the SECURE Act provisions related to (among other things) catch-up contributions, automatic enrollments in retirement plans, and the use of student loan payments as a qualifying payment for an employer match contribution.”
Private Equity Rises
This is all going to be a boon for annuities and the insurance companies that offer them, CFRA said, aiding companies such as American International Group and Equitable Holdings Inc., as well as private equity companies Apollo Global Management and KKR & Co. that have put stakes down in the annuities market.
Higher interest rates are also going to give annuities a big boost, since higher rates also mean bigger annuity returns.
The low interest rate environment over the last decade caused a shakeout in the annuities business, CFRA said, and a reshuffling that allowed private equity to get a leg up and a hand in.
“A prolonged low interest rate environment and heavy capital levels associated with this business led a number of insurers to shed their annuity businesses and pursue a more streamlined business model,” CFRA said. “Meanwhile, the (somewhat) distressed annuity assets that were coming to market were attractive to many private equity firms, who were searching for ways to increase their levels of perpetual capital (which is capital not subject to the drawdowns, capital calls, and exit strategies typically associated with private equity investments).”
CFRA noted a number of the transformative sales that have recently gone down in the annuity business: Allstate exited the business in 2021 after its sale of Allstate Life Insurance Company of New York to Wilton Re for $400 million and the sale of Allstate Life Insurance Company to Blackstone for $2.8 billion. The same year, American Financial Group announced the sale of its annuity business to MassMutual for $3.5 billion. AIG sold 9.9% of its Life & Retirement unit to Blackstone.
Among the PE players, Apollo Global Management bought out the remaining 65% stake of Athene Holding, a fixed and index-linked annuity provider, for $11 billion in 2022. In 2021, KKR snatched a majority interest in Global Atlantic Financial Group, a life and annuity underwriter.
CFRA lists KKR as a “strong buy,” while it has a “buy” on AIG, Apollo and Equitable Holdings.
The firm has a “hold” on Lincoln National. While Lincoln’s annuities were a bright spot, the company reported an operating loss of $1.94 billion in its life insurance business in 2022.
“Risks to our thesis and recommendations include a greater than forecasted slowdown in worldwide economies, which would dampen demand for savings and retirement products, including annuities,” said CFRA.
Fixed annuity sales continue to surge but decade-long trends will return
Annuity sales—helped along by rising interest rates—are surging. If current market conditions hold, fixed annuities, fixed-indexed annuities (FIAs), and registered index-linked annuities (RILAs) are predicted to compete more fiercely with one another during the next five years, according to the latest Cerulli Edge—U.S. Asset and Wealth Management Edition.
If fixed annuity rates remain high enough, advisors and their clients will likely continue to elect a predictable rate of return with full principal protection versus annuities that offer upside potential with principal at risk. However, as interest rates decrease over time, Cerulli predicts, by 2027, marketshare of fixed-indexed annuities (FIAs) as a percentage of total annuity sales will increase and reach 26%, followed closely by RILAs (23%) and traditional fixed annuities (20%). “With financial markets and economic news remaining unsettling for many investors, annuities that provide predictable outcomes will remain a hot commodity,” states Donnie Ethier, senior director.
Over the past several years, RILA sales growth has outpaced that of all other annuity types, but lately, thanks to rising interest rates, these products have encountered stiffer competition from traditional fixed annuities and FIAs. These conditions will bear watching in 2023 and 2024. Traditional variable annuity (VA) sales, however, will remain under pressure as insurers and advisors continue to migrate away from selling VAs with benefit guarantees, according to the research.
Cerulli sees three potential avenues for growth of the annuity market in the coming years, all of them connected to the needs and preferences of the 44% of retired households that cite assuring a comfortable standard of living in retirement as their most important financial goal. While insurers have done their part to enhance product solutions, those that remain committed to the VA marketplace should expand their focus on guaranteed withdrawal benefits (GLWBs). Insurers should also participate in recent efforts to bring more annuities to defined contribution plans. The SECURE Act of 2019 and the just-enacted SECURE 2.0 extend the distribution age requirement and provide retirement savings incentives for qualified plans. The final avenue for growth lies in helping with the cost of long-term care (LTC) with concepts that include in-plan annuities, income-taking solutions, LTC hybrids, and inflation protection features.
Cerulli believes insurers should aim to leverage the current favorable conditions in the annuity market to nudge the industry conversation toward product concepts. “Understandably, the industry is focused on principal protection right now, but the income story of annuities will return and grow in importance,” says Ethier. “The industry would benefit from more studies that compare the pros and cons of various income strategies, such as systematic withdrawals from one’s investments, traditional annuity payments, and GLWB withdrawals,” he adds.
How Much Does an Annuity Pay Per Month?
Kat Tetrina (FORBES.COM)
When markets are turbulent and recession rears its ugly head, investors can turn to annuities to help assuage their concerns that their retirement funds could run out. These investing vehicles can offer a steady, predictable source of income over the long term.
But how much does an annuity pay per month? That depends on the type of annuity you have, the payout duration and the principal investment.
How Annuities Work
An annuity is a contract between you and an insurance company. When you buy an annuity, the insurance company is required to make payments to you, either right away or at some specific point in the future. In exchange, you make premium payments, either as a lump sum or in installments.
Annuities themselves are either immediate or deferred:
Immediate. With an immediate annuity, the annuity is purchased with a one-time contribution, and the annuity provides income payments to the annuitant within one year of its purchase.
Deferred. Deferred annuities can be purchased with one-time contributions or installments, and they provide income to the annuitant at a future date.
According to Melody Evans, a wealth manager advisor with TIAA, annuities can be appealing because they provide periodic payments in retirement.
“Annuities provide certainty,” she says. “Fixed annuities can provide a known and stated crediting rate and annuity payouts provide a known and stated monthly payment.”
You also pay no taxes on the income and investment gains until you start taking withdrawals. In this way, annuities offer tax-deferred growth.
How to Calculate Your Monthly Annuity Payout
Before purchasing an annuity, you likely want to know how much you can expect in monthly payouts.
According to Misty Garza, a certified financial planner and vice president with Bogart Wealth, annuity payments vary based on several factors.
“Annuity payments are a function of the individual’s age, current mortality tables, current interest rates, and how much they are putting into the annuity,” she says.
Although there are three main types of annuities—variable, indexed and fixed—for demonstration purposes we’ve focused on calculating the monthly payouts offered by fixed annuities.
With a fixed annuity, the insurance company guarantees the payout will be the principal and a minimum rate of interest. As long as the insurance company you choose is financially stable, the money that you have in a fixed annuity will grow, and it will not drop in value.
To calculate your payouts, consider the following variables:
Principal balance. The principal of your annuity is how much you paid to purchase it. You may have purchased it with a lump sum or installment payments; the principal is the total you contributed, minus any fees or charges. The higher your principal, the higher your monthly payment.
Interest rate. Fixed annuities have a minimum rate of interest, so the interest rate will never fall below that number. The minimum rate should be listed on your annuity statement or contract.
Payout schedule. Some annuities pay you in installments for a specific period, such as 10 years, while others may give you installment payments for your lifetime. The payout schedule will affect if you even receive a payment every month.
Inflation. Price increases throughout the economy slowly erode the purchasing power of your annuity payments. Some annuities offer optional inflation protection riders, which could decrease the amount of your initial monthly payout but preserve the value of ongoing payments over the long term.
Annuity Payout Formula
The formula to calculate your annuity payout is:
P = (d[1-(1 + r/k)-nk])/(r/k)
P: Balance of the annuity at the beginning of the payout period
D: The regular withdrawal amount
R: Annual interest rate in decimal form
K: The number of compounding periods; since we are calculating monthly payouts, we used 12
N: The number of years you plan to take withdrawals
Assuming a $100,000 one-time contribution, a 4% interest rate and a 10-year payout period, here’s how to calculate your monthly payouts:
$100,000 = (d[1-(1 + 0.04/12)-10*12])/(0.04/12)
Using that formula, you can find your monthly payout with different terms:
*The numbers in this table are hypothetical and do not account for inflation. It should only be used as a ballpark estimate. Actual payouts vary based on the terms of your contract.
If math is not your strong point, or if you’re simply looking for a faster method, you can use any number of online annuity payout calculators.
Annuities and Retirement Planning
In general, experts recommend that annuities complement your retirement savings, but they shouldn’t make up your entire plan.
“Annuities have their place for certain individuals, but they are not meant for everyone,” Garza says. “I think it is important to understand one’s risk tolerance and comfort level with the market to determine whether or not they will be better off with an annuity for an income stream.”
When considering whether an annuity is right for you—and how large of one to purchase—keep in mind that annuities lock up your cash.
“The biggest [drawback] is no longer having a larger pot of money to draw from should you have a major expense come up,” Garza says. “Because of this, it is important to make sure you do not put all your money into the annuity.”
Unlike bank accounts, annuities aren’t insured by the government through the Federal Deposit Insurance Corporation (FDIC). As you consider your options and weigh the pros and cons of annuities, consulting with a financial advisor can help you create a plan that works for you.
Covered California Finishes Open Enrollment With More Than 1.7 Million People Signed Up to Receive Quality Health Care Coverage
SACRAMENTO, Calif. — Covered California announced that 263,320 people had newly selected a health plan for 2023, continuing a trend of steady growth in recent years. The total is more than 14,000 higher than 2021’s total, and 8,000 higher than last year’s figure. In addition, more than 1.4 million Californians renewed their health insurance for 2023, bringing Covered California’s overall enrollment to 1.74 million.
“Covered California is woven into the fabric of our health care system, providing quality coverage in every corner of the state and protecting more than 1.7 million Californians,” said Jessica Altman, executive director of Covered California. “The strength in these numbers is driven by the Inflation Reduction Act, which provides increased and expanded financial help, bringing the cost of coverage within reach for millions of Californians who need health insurance.”
Covered California’s analysis shows that the total number of consumers selecting a plan for 2023 is 1,739,360, which reflects 1,476,040 consumers renewing their coverage and 263,320 consumers newly signing up for coverage during open enrollment.
“The strength and stability that Covered California has seen since the pandemic started are a testament to the work we do, and the fundamental belief that health care is a right and not a privilege,” Altman said. “Covered California is dedicated to increasing the number of people who have quality health insurance and reducing the state’s uninsured rate, which now sits at a record low.”
Since Covered California’s first open-enrollment period in 2013, federal data shows that California’s uninsured rate fell from 17.2 percent to a record low 7.0 percent in 2021, which is the largest percentage point drop for any state in the nation over this time period.
In addition, Covered California’s total enrollment has increased by 200,000 since the beginning of 2020, before the pandemic started.
Californians Can Still Enroll in Coverage
Covered California is also reminding Californians that they still have an opportunity to sign up for quality health insurance through Covered California’s special-enrollment period. As Covered California illustrates in its television ad, entitled “Life Takes a Turn,” some of the most common reasons that someone would be eligible for special enrollment would be losing health coverage, getting married, having a baby, permanently moving to California or moving within California.
A full list of qualifying life events can be found on our Special Enrollment page.
Those interested in learning more about their coverage options can:
Get free and confidential in-person assistance, in a variety of languages, from a certified enroller.
Have a certified enroller call them and help them for free.
Call Covered California at (800) 300-1506.
Many Californians Can Get Comprehensive Coverage for $10 or Less
Consumers who sign up will benefit from the lower costs available through the increased and expanded financial help provided by the Inflation Reduction Act. Right now, nine out of every 10 Covered California consumers now qualify for financial help, and more than two-thirds of consumers are able to get comprehensive coverage for less than $10 a month.