Many financial advisors consider annuities to be a dirty word, but these investment vehicles are playing a growing role in retirement planning and are projected to reach $2.9 trillion in total investments by 2012, up from the current level of $2.1 trillion, says a new study by Cerulli Associates.
Advisors generally prefer to use mutual funds to produce retirement income for their clients, but there's a growing acceptance among advisors of the guaranteed minimum withdrawal benefit feature of annuities.
Annuities are forecast to grow by 7.9% a year over the next few years, according to Cerulli Quantitative Update: Annuities and Insurance 2008, a survey of asset manages and insurance representatives. Cerulli, a Boston-based financial services research firm, says that 38% of financial advisors always use variable annuities with living benefits to meet some of their clients' retirement needs and 36% use them sometimes.
Investments in variable annuities--both tax deferred and non-deferred--are becoming more important as the first wave of baby boomers reach retirement age and retirement savings rollovers become more widespread. The entire pool of public and private retirement plan assets is estimated at $15.1 trillion.
The increasing use of annuities is attributable in part to the added benefits available on some such as lifetime guarantees, step-ups in payout amounts and deferral bonuses. Annuities should become an integral part of the retirement package mix instead being considered as a stand-alone product, Cerulli advises.