This week Fixed Index Annuities (FIAs) reached a milestone – their 20th anniversary! On February 15th, 1995, Fixed Index Annuities were first introduced to consumers as a key product for helping plan a secure, dependable source of income for retirement.
FIAs were first created as a reaction to the economic volatility that darkened the bond and stock markets in 1994.[i] Despite the economic growth that characterized the 1990s, traditional financial options suddenly looked less dependable and an opening was available for a product that could be depended upon in times of economic turbulence to retain its principal and always provide a certain degree of growth – no matter the market conditions.
Consumers flocked to the new instrument and over the next 20 years FIAs proved to be a key part of a strong, trustworthy portfolio designed to provide confidence in later years. The proof is in the pudding – sales growth of FIAs over the last 20 years has been considerable. As Jack Marrion, president of Advantage Compendium, a financial research and consulting firm, found, “since 1995, roughly $400 billion in fixed index annuities have been purchased by millions of consumers.” [ii]
Today, the marketplace bears striking similarities to the conditions that first fostered FIAs. In the aftermath of the Great Recession, growth is once again on an upswing, but mindful of the recent economic decline and shocks, there’s still an appetite among consumers for dependable, safe ways to plan for a fulfilling retirement.
So, what does the future for FIA’s look like?
- The customer is changing. Traditionally, FIAs were purchased by those beginning to seriously consider their prospects for retirement. In a phrase – Baby Boomers. But, with the effects of the Great Recession still lingering, FIAs are now increasingly appealing to younger generations, even millennials, who understand the need for financial security and are worried about the future. As a Wells Fargo survey found, that more than a third of Millennials expect to receive 0% of their retirement income from Social Security, and another 21% say they have no idea what to expect. As young people advance in their careers, the purchase point for FIAs looks likely to shift to younger demographics than has conventionally been the case.
- FIAs will look different. Fixed Index Annuities have evolved over the years and the evolution is bound to continue. On an ongoing basis companies and agents are finding innovative ways to determine new indexes and annuities that offer consumers greater choice and flexibility. Such forward-thinking is a key reason FIAs have been so successful for both contract owners and their beneficiaries. That innovation is bound to continue.
- FIAs will become better known among everyday consumers. Traditional retirement options such as pensions are dwindling. It used to be that you could hold a single job for 25 years and be able to retire comfortably at an early age and on a healthy pension. As Towers Watson, a business consultancy, found, in the last 15 years, the portion of the U.S.’s largest companies offering defined-benefit pensions to new workers has fallen from 60 percent to 24 percent. Further, with individuals switching jobs on a more frequent basis and employers looking for new retirement options to offer employees, FIAs will increasingly become a go-to product for those looking to finance a rewarding, balanced retirement.
It’s been a strong, exciting 20 years for FIAs and the future is bright. Customers who may have never heard of a Fixed Index Annuity in the past will progressively consider them at younger ages and companies will continue to develop new products that reach wider audiences and satisfy the widespread desire for a secure and comfortable retirement. When it comes to considering an FIA, Benjamin Franklin put it best, “Never leave that till tomorrow which you can do today!”