Structured annuities are a somewhat more recent annuity category compared to the fixed and indexed annuities. Structured annuities came about through a number of insurers designing a annuity product for people nearing or planning retirement who want to invest for growth but are concerned about the frequent stock market downturns.
Annuities are truly the one of safest products in the U.S. retirement world. Different forms of annuities have been around since Roman times when soldiers were provided with a retirement style income after serving for their country or at war.
They are designed to really help people with having a safe reliable investment tool in the markets that will provide them with upside potential when the markets are rising combined with a floor or buffer to prevent major losses when the markets & Wall Street are in a downward trend. Nowadays markets are much more volatile than in the past due to electronic trading and the internet besides the normal global financial, geopolitical and other risks. This makes it more important than ever to look at retirement and investment tools that require little or no daily oversight, and with just two moving parts—the cushion and the cap. Request your free planning guide below via email.
Structured annuities’ simple name hints at their most enticing function: They peg returns to a stock market index and promise to absorb a certain level of losses, typically the first 10%. So, in that case, if the market falls 15%, you would lose 5%; in a 7% market drop, you would register no loss. In exchange, it sets a cap on the upside performance. Indexed annuities have always had caps and a floor this is simply a new method taking into account a downturn. The current cap on S&P 500–linked products ranges between 10% and 14%.Like all annuities, these new products have variations to appeal to investor preferences. There are two types of structured annuities—buffer and floor products.
When markets are up, the two cost structures tend to net out about the same for investors. But when indexes are flat or down, folks with an explicit fee such as older annuities and variable annuities still have to pay up.Like all annuities—and most insurance products, for that matter—structured annuities are fairy complex behind the scenes, with insurer's using sophisticated investment strategies to mimic an index’s return and mitigate downside risk.
Structured annuities originally were designed with high-net-worth investors in mind to provide a safe asset that captured growth in the markets they choose with a floor or net to prevent to much downside risk from occurring. If you are new to investing and seeking a product that will protect your investment assets from losses annuities provide the best possible scenario because they protect against sequence of return risk when nearing retirement or when five to 10 years into retirement on a fixed income.These caps are a vast improvement over the 4% cap on returns previously set by fixed-indexed annuities, which also peg upside to a stock index and, until now, have been the industry’s go-to option for investors wanting downside protection and something more than just Treasury yields. Sales on fixed-indexed annuities, which have been the rising stars in the industry in recent years, dropped in 2017 by 5% due to many people believing the markets trajectory will only continue significantly upwards.