By Cyril Tuohy
Guaranteed Future Income (GFI), a deferred income annuity introduced by New York Life in July 2011, has exceeded $2 billion in premiums. This is an indication of the demand from pre-retirees for guaranteed income and investment simplicity, the company said.
GFI was introduced the year that the first of the baby boomers turned 65 years old.
Deferred income annuities allow contract holders to delay income from the annuity. Premiums are invested and the longer the deferral period, the higher the monthly payments once the annuity begins to pay out.
Sales of deferred income annuities in the first six months of this year reached $1.3 billion. This is an increase of 42 percent over the year-ago period, according to data from LIMRA Secure Retirement Institute’s U.S. Individual Annuities Sales Survey.
New York Life, one of the largest life insurance and annuity carriers in the United States, is watched closely by competitors. Since GFI’s introduction, 10 carriers have introduced similar annuity products, the company said.
David Cruz, senior managing director in charge of New York Life’s annuity products, said the milestone is a sign that pre-retirees who are planning for a retirement that may last as long as 40 years want “pension-like income, guaranteed by highly rated insurers.”
Between the initial purchase date and the income start date, GFI contract holders can continue to buy more future income through additional premium payments, or can defer or accelerate their income start date as their needs change, New York Life said.
Since GFI’s introduction, 20 percent of its contract holders have contributed more than one premium payment.
The policy, usually bought with money accumulated in an individual retirement account or 401(k), is an example of the annuity industry introducing more flexible products in response to the needs of retirees and pre-retirees between the ages of 55 and 65.
New York Life said the current payout rate for a 60-year-old man who defers for 10 years is about 12 percent. A $100,000 premium purchase would generate $12,000 a year for the rest of the contract holder’s life beginning at age 70, the company said.
There are about 76 million baby boomers in the United States. As more boomers age they will look to guaranteed income to help fund their retirements.
Carriers are watching to see what kind of annuity pre-retirees and retirees buy to guarantee that income.
Will buyers stick with a traditional single premium immediate annuity? Or will they prefer a deferred income annuity like GFI? Or, will they stick with a fixed index annuity, which has been popular lately with the strong performance of the stock market last year?
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].
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