Are annuities poised to make a comeback in the wake of recent taxes increases forged in the fiscal cliff deal?
Half of investors with between $150,000 and $249,000 in income are receptive to learning about annuities and other tax-advantaged products, according to a recent Nationwide Financial poll. Fifty-two percent believe that changes can be made to prepare their portfolio to prepare for the tax code changes, compared with only 36 percent of all survey respondents who believe they can make adjustments to their portfolio.
The most likely investors to want more education on annuities, life insurance, and 401(k) plans, the survey found, are investors ages 35-54, They are also less resistant to making portfolio adjustments, with less than one-third (31 percent) not planning to make any portfolio adjustments as a result of new taxes vs. 45 percent.
The survey’s findings suggest that women would be a promising demographic for financial advisors to pursue regarding annuities. While less worried than men about the impact of tax changes on their household income, they did express less confidence than men about their knowledge of the tax advantages of annuities, life insurance and 401(k) plans.
Ownership of fixed and variable annuities has dropped in the past two years, according to a fourth quarter financial product ownership study conducted by Millionaire Corner. The percentage of investors with between $100,000 and $1 million to invest likely to buy variable annuities dropped from 24 percent in 2010 to 15 percent in 2012. Those with fixed annuities fell from 31 percent to 17 percent in the same time frame.
As Millionaire Corner recently reported, insurers have modified annuity offerings and others – such as Hartford Life, Sun Life, Genworth and ING – have left the market altogether. Attempts by the industry to minimize risk with restructured products might require the help of a financial advisor to help confused investors make an informed decision.
Annuities are contracts backed by insurance companies. They allow assets to grow and compound tax deferred as with an IRA. Unlike IRA, there is no contribution limit and once can defer taxes until money is withdrawn. But as with a Roth IRA, there is no upfront tax break on contributions.
Annuities are conservative investments that offer investors guaranteed lifetime income as well as principal protection. But once an annuity is purchased, investors do not have access to that money, leaving them possibly at a disadvantage when faced with unexpected expenses.