Boomers And Hybrid Annuities
The Baby Boomers are arriving in full force.
In 2006 we witnessed activity in the annuity sales market totaling sales of $236 million. Much of this demand is because Baby Boomers were retiring at the rate of 10,000 per day. And with the impending crush of retirements, the insurance industry is gearing up for a once-in-a-lifetime opportunity to offer innovative retirement plans.
By 2018, the number of those reaching age 65 had increased from 8,000 to 10,000 a day. The Baby Boomers were arriving in full force.
A recent study by the AARP, which surveyed the investment habits and retirement plans of baby boomers approaching retirement. It showed that as respondents get older, they get more risk-averse, move out of the stock market and into investments that offer safety and secured but reduced returns. At the same time, rising healthcare costs and an impending downturn in the housing market have left these about-to-retire investors with insufficient resources to maintain the same lifestyle.
To this end, companies are coming up with hybrid annuities, which combine the many advantages of different annuity products. These hybrid annuities are being matched to the requirements of retiring boomers in an age of volatile markets and increasing anxieties about retirement security. While the housing and other investment sectors are being roiled, annuities alone offer retirees the combination of guaranteed returns and instant liquidity to help manage payments.
Hybrid annuities have features of both fixed and variable annuities. With a hybrid annuity, you have the right to decide the percentage of your investment towards a fixed annuity, which offers you a guaranteed rate of return, as well as the percentage of investment that goes towards a variable annuity, where you are entitled to a share of the profits from the investment.
Hybrid annuities offer retirees more flexibility and control over the savings in the first few years while guaranteeing income in the later years. You are generally allowed to transfer interest payments to the variable annuity as an additional investment if you do not need the payment. This kind of hybrid annuity is targeted explicitly at retiring baby boomers with other sources of income in the first few years, such as a new job or a still employed spouse.
Therefore you can add value to your annuity and build it up, with the optional flexibility to accept liquid payments, should it be necessary. In later years, the now enhanced hybrid annuity will provide a rock-solid and more than sufficient income source to fulfill all financial obligations and retain a comfortable lifestyle.
Annuities are tax-deferred, and if you are expecting to be in a lower tax bracket when you withdraw the funds, it will significantly add to the savings. With markets shifting from asset accumulation to asset distribution, investors are looking for insurance products like hybrid annuities which offer both in a single contract. Return rates and profit percentage allocations for the investor may vary depending on the annuity issuing insurance company and the type of annuity. In some cases, early withdrawal is subject to penalties by the IRS. Please consult your financial advisor to make sure that the terms of the contract match both your requirements and your resources.