Guaranteed Appeal
May 21, 2019 by Herb Braley, Jr.
A growing concern among working individuals is whether or not they are saving enough money for retirement. Luckily, various financial products exist to mitigate the longevity risk and provide guaranteed solutions. One of the strongest options is an annuity because they are the only investments that are inherently tax-deferred and can be considered guaranteed income. The product is an agreement between your client and the insurance company in which they pay a sum of money, either all at once or in a series of payments, to provide regular disbursements for the rest of their life. They can also be combined with other products, such as cash value life insurance, to provide a custom solution based on your clients’ needs. While annuities have long been an appealing product, the current marketplace has positioned segregated fund contracts as a better fit.
The Ideal Marketplace for Annuities
When annuities were relatively new to the marketplace with high interest rates, they were lucrative, appealing solutions for clients. Whether clients invested in a term-certain annuity or a life annuity with some guarantees, the number one benefit has always been the guaranteed income, a universal need. In recent years, interest rates have been at an all-time low in Canada, which makes the market less conducive for annuity products. As the interest rate environment changes, we’ve seen investments like segregated fund contracts increase in use because they keep clients in the market with access to capital.
We can expect the annuity market to become more prominent as interest rates slowly begin to rise. When they reach around 5 to 8 percent, the annuity market will take off again. Companies and people who sold or positioned annuities before, will start to again, and those who never sold them in the first place may break into the market. An annuity in a market with a high interest rate is just about one of, if not the best option out there for clients. Although it might not be the best marketplace for annuities right now, there will certainly be more of a thriving marketplace for them in the future.
Click HERE to read the full story via Advisor Magazine.
