NEW YORK, Oct. 10, 2018 /PRNewswire/ -- New research by CANNEX asked a simple question: Which type of annuity provides the highest guaranteed income for Americans planning for retirement? The answer is, it depends. The report, "Guaranteed Income Across Annuity Products," shows that when compared, different types of annuities with equivalent benefits provide higher income guarantees depending upon when income is taken, income delay, gender, and whether it is for a single person or a couple.
Single premium immediate annuities (SPIAs) were generally found to provide the highest income guarantee for those planning on drawing immediate income. For a couple who are of different ages the study found that a variable annuity (VA) with guaranteed income may generate the highest annual payments. For an individual looking to start drawing down money in five or 10 years, the research shows a Fixed Indexed Annuity (FIA) provides a greater guaranteed stream of income than either a deferred income annuity (DIA) or variable annuity.
For women, the differential between a fixed indexed annuity and a deferred income annuity is even greater because DIA benefit payments are lower based on longevity expectations. The longer the delay in taking income, the greater the benefit for women of choosing an FIA versus a DIA. Based on a $100,000 premium investment in a DIA at 65-years-old, a woman of average projected longevity would receive, after 10 years deferral, around $11,700 in annual income, versus approximately $12,900 for a man. By contrast, an FIA could generate as much as $14,313 of annual income regardless of gender.
"It's often assumed that simple income annuities provide the highest guaranteed lifetime income compared to savings annuities such as FIAs or VAs, and this idea has become ingrained in the way we talk about income annuities in the planning process," said Gary Baker, President of CANNEX USA. "As the industry leans towards a best interest standard for advisors, it is important for them to be aware that they should consider guaranteed income across all available products for clients with an income objective."
The report draws upon CANNEX's quantitative annuity comparison tools that enable financial institutions and advisors to evaluate the value of annuity guarantees based on the design of the benefit. In addition to looking at the minimum income guarantee, the data uses an average income value that reflects performance under a wide range of market scenarios. For SPIAs and DIAs, projections include a death benefit and 100% spousal income continuity option, so full benefits are comparable to savings annuities. For VA simulations, the asset allocation mix is 60% equity and 40% fixed income. The FIA performance is contingent on the crediting method and index; this research compares designs based on the S&P 500 Index.
By evaluating the performance of savings annuities in a range of market scenarios, the report highlights an additional important consideration when comparing guaranteed income benefits. The data reflects the trade-off between the level of guarantee and the upside potential in a rising market. It shows that FIAs with the highest guarantee are less likely to experience a noticeable increase in income based on market performance. Those with lower guarantees are more likely to see greater upside potential. This applies to FIAs and to a lesser extent to VAs.
"Using our quantitative tools to compare different types of annuities across products and providers on an apples-to-apples basis, the study reveals a complex story—the highest guaranteed income product varies significantly by client and when income begins," said Tamiko Toland, Head of Annuity Research, CANNEX. "There are many factors that go into the selection of an annuity. Income generation is not the only one, but it is central to their value proposition and advisors need to rely on real analytics, not traditional perceptions or best guesses of how guarantees work to best serve their clients."
CANNEX Financial Exchanges Ltd. supports the exchange of pricing information for annuity and bank products in North America. The firm provides financial institutions with the ability to evaluate and compare various guarantees associated with retirement savings and retirement income products. In the U.S. this includes the evaluation of annuity guarantees (Income Annuities, Variable Annuities, Indexed Annuities, and Fixed Rate Annuities) and consulting services supporting the optimization and allocation of retirement income portfolios. For more information about CANNEX, visit www.cannex.com.
Simon Erskine Locke