U.S. News And World Report Touts Annuities As Investment To Watch

On July 29, U.S. News and World Report touted annuities as a hot new investment for the coming years. The report concluded that these “misunderstood” investments were seeing record sales and overdue for high-tech innovations that will greatly increase their appeal.

Recent regulatory changes are also improving the reputation of annuities this summer. This July, the IRS released an official notice of new regulations, which would place strict limits on the ability of financial institutions, like insurers, to offer lump sum payments instead of the standard defined benefit annuity payments.

In certain types of annuity plans, retirees were being offered lump sum payouts rather than lifetime payments, which the IRS said transferred an unacceptable amount of risk to retirees. Not only that, but the normally divided California legislature unanimously voted to prevent insurance companies from levying surrender charges on death benefit annuities. Surrender charges fined annuity holders for withdrawing funds early, a practice opposed by politicians and senior citizen advocacy groups.

In 2013, there were about 34 million outstanding annuity contracts, valued at a total of $2.5 trillion. This year, the recent changes by the IRS, states like California, and the expectation of technology related innovation in annuity sales have investors reconsidering their take on annuities.

“By 2020, we’re going to see people able to buy annuities direct,” said annuities expert Stan Haithcock. “Whenever you have that kind of online sales model, you get a guy like Jeff Bezos who takes an Amazon approach and says, ‘I’m going to sell annuities direct.’

“In fact, it surprises me that Bezos hasn’t done it already.”

Investors and consumers have often been wary of fixed benefit annuities, which are often far too complex for laypeople to understand. Others criticize annuities with early withdrawal surrender charges, which place strict limits on the annuity holder’s financial flexibility. Although California will prevent surrender charges starting January 1, 2016, most types of annuity contracts will remain unaffected.


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