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roger ibbotson fixed index annuity

When Roger Ibbotson recently published a new report on fixed indexed annuities and their place in an optimized retirement portfolio, everyone took notice. Few economists and financial researchers garner the attention and level of respect that he does.

He is Professor Emeritus at Yale School of Management, former chairperson of research firm Ibbotson Associates, and chairman as well as chief investment officer at Zebra Capital Management. Ibbotson is also a prolific author, having conducted financial research on many topics including investment returns, mutual funds, international markets, portfolio management, and valuation.

In past studies, his analysis has been groundbreaking and his principles adopted by financial markets at large. So, it's not surprising why his research on fixed index annuities has gained such wide attention.

In his latest study, Fixed Indexed Annuities: Consider the Alternative, Ibbotson expands his view of the use of a fixed index annuity (FIA). Here, he defines a fixed index annuity as a tax-deferred retirement savings vehicle that "eliminates downside risk while allowing for the opportunity to participate in upside market returns."

As baseline benefits, he believes that fixed index annuities, if properly structured, can help control financial market risk and mitigate longevity risk.

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fixed index annuity sales q1 2018

Good news for insurance companies and customers who purchase their retirement-income products. In the first quarter of 2018, purchases of fixed index annuities rose 10% when compared with the same period last year. Not only that, overall fixed annuity sales also saw a significant upward swing.

Fixed index annuity sales were $14.2 billion for the first quarter, according to Wink’s Sales & Market Report, a leading resource in the insurance industry for indexed annuity sales. Not only did sales rise year over year, they were also up 4.4% when compared to the previous quarter, Wink reports. Index annuities have a floor of no less than zero percent and limited excess interest that is based in part by the up-or-down movements of an external index, such as Standard and Poor’s 500®.

Another financial research firm, LIMRA, also observes that fixed annuity sales are on the rise. It projects sales of fixed-rate annuities to reach more than $50 billion by 2019. LIMRA calculates that this is close to 50% greater than the $34 billion in purchases of fixed-rate annuities reached last year.

Still, these strong numbers are short of the record—$60 billion plus. That figure was spurred by retirement savers seeking conservative market protection and guaranteed income strategies in the wake of the Great Recession.

Overall, LIMRA forecasts all annuity sales will grow 5%-10% year-over-year in 2018. And they may even rise up up to 5% in 2019. 

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In previous blog posts, we’ve discussed topics such as the growing appeal of fixed index annuities. Changes in the American retirement landscape, such as the shrinking availability of defined-benefit pensions, is prompting many workers and retirees to investigate alternative retirement income vehicles. As a result, total fixed index annuity sales in 2014 shot up 104.3% from total sales figures in 2004, according to Beacon Research ($47 billion in 2014 versus $23 billion in 2004).

But what, then, about CDs? How do fixed index annuities stack up against them? To get a comparative overview of both financial solutions, let’s cover some history as well as key differences.

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Are you considering a purchase of a fixed index annuity? It's important to evaluate your unique financial needs and determine if it'll be a suitable fit. Many Americans have found fixed index annuities to be an effective vehicle for achieving retirement income security.

Consider the following data:

• Since 1995, Americans have purchased almost $400 billion in fixed index annuities (From Advantage Compendium Ltd)
• 99.994% of indexed annuity owners have no complaints about their indexed annuity purchase (Advantage Compendium Ltd)
• Only 0.006% of indexed annuity owners have registered complaints about their annuity product purchase (Advantage Compendium Ltd)
• In a 2012 study, 83% of indexed annuity buyers and 86% of traditional fixed index annuity buyers reported satisfaction with their annuity purchase (LIMRA)
• At the close of 2014, fixed index annuity sales were $47 billion, a 104.3% increase from sales in 2004 ($23 billion in sales that year) (Beacon Research)

Fixed index annuities were originally created as a financial alternative to CDs and their meager potential for retirement income. The catastrophic effects of the 2008-2009 financial crisis and the changing dynamics within the American workplace landscape also have had an impact. Now many Americans are exploring fixed index annuities as an alternative retirement vehicle.

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With its market introduction in 1995, the fixed index annuity is a retirement vehicle with a 20-year record. Despite the Booming 90s, economic volatility swept the bond and stock markets in 1994. These trends gave rise to consumer demand for a new retirement product – one which offered some growth potential, but which extended principal protection in times of economic hardship.

As a result of the shift in consumer psychology, insurance carriers unveiled the fixed index annuity. And since that time, this retirement product has grown in popularity. According to data from the research firm Advantage Compendium Ltd., Americans have purchased roughly $400 billion since 1995. It's a statistic which continues to grow.

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Many investors have opted for fixed index annuities as a source of retirement security. But what exactly is a fixed index annuity? And for that matter, how does it stack up against other financial options?

Comparatively, financial products such as CDs offer low return potential. They also don't offer a guaranteed lifetime income option. And for seniors looking to bolster their retirement income, the ups-and-downs of the stock market puts retirement dollars at risk. After all, the market moves through cycles. Historical data shows it can take years for the market to recover.

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