A Decade Later: Variable Annuities Only Getting Better with Time

Ten years ago this summer, the Wall Street Journal published an article that focused on the benefits of annuities in a down market. If you, like many Americans, were invested in the stock market during 2008- 2009 chances are you experienced some loss. One of the most often debated investments over the past decade, Variable Annuities, continue to gain traction amidst these uncertain economic times.

For years investors have argued against the need to pay for a guarantee against a market downturn when stocks have been on an uptick. However, when the market sells off the way it did ten years ago, fees for guarantees no longer seem expensive. In fact, because of those guarantees, many annuity owners saw their accounts increase 6% or more in value, when the S&P 500 dropped nearly 57%. This is due to the fact that insurers pledge to pay life-time retirement income based on past market gains, while also applying minimum annual increases during sluggish years. A decade later as we find ourselves once again in a volatile market, annuities still standout as an efficient way to protect assets against stock market declines.

A Variable Annuity (VA) is a long-term tax advantaged contract between an investor and an insurance company. These contracts are designed to address the concern of outliving your assets or maintain your current lifestyle in retirement. The first phase of the contract is “accumulation” where the investor makes either one lump sum payment or a series of payments to the insurer. During the second phase, the “payout” phase, investors are able to receive periodic payments over a specific period of time or over the owner’s lifetime. The lifetime income is calculated based on age. The income base, unlike the contract value, can offer income for life based on market gains in the underlying funds and annual increases in years when markets are down.

Today, we are in an era where traditional pension plans are a thing of the past and social security income just isn’t enough in retirement.  So now more than ever investors need to find alternative retirement solutions. Variable annuities continue to evolve offering innovative products and strategies for investors. In today’s society we are all about protecting what we own and if you pay for apple care on your iPhone or insurance on your vehicles, why not pay to insure your hard earned assets?

Contact an Oppenheimer Financial Advisor to discuss how an annuity can be a strategy for you.