Many of the millions of people forced into early retirement during the pandemic are taking a second look at annuities, hoping to find an answer to the loss of income in what was supposed to be their final working years. That can make sense, advisors say, but the risks are substantial.
Of particular note is the surge in sales of registered index-linked annuities, or RILAs, last year. RILAs are sold as a sort of safe, but-not-too-safe investment. An RILA has some potential for returns and some protection against loss. That combination had great appeal last year: sales of RILAs soared more than a third to $24 billion in 2020 from the $17.4 billion RILAs seen in 2019, according to Investment News, citing data from Limra’s Secure Retirement Institute.
That buying craze was driven at least in part by investors in their late 50s and early 60s who had planned on working, and saving, for a bit longer before needing to rely on investment income. And there are a lot of such investors. Nearly 3 million people ages 55 and older have been forced out of the labor market since the start of 2020.
The problem is that the pressure of sudden, unexpected job loss can lead to some poor investment decisions. Buying an ill-fitting annuity in a panic can make a client’s financial situation much worse. It’s in a situation like that where frank talk from an advisor is needed.
“For the unsophisticated investor … fear of running out of money is a powerful motivator,” Rob DeHollander, managing principal at DeHollander Financial Group, told Investment News. “So you really want to make sure you’re working with somebody reputable and make sure the product is a good fit.”
