Fast Facts
  •  9/1/2021

Annuity Fast Facts: Structured Annuities

By SIMON
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Annuity Fast Facts

A series to create increased awareness of annuities by providing market color, friendly tips, and interesting stats at-a-glance.

A deferred annuity is a long-term tax deferred investment issued by an insurance company and purchased through a qualified professional.

There are four main types:

STRUCTURED ANNUITIES

Structured annuities offer some potential for market growth with reduced downside risk.

Market color

After bottoming in March of 2009, the S&P 500 climbed more than 550% and sat at record highs at the end of 2021. 2022 brought new challenges for the equity market though. Market uncertainty creates an understandable desire to find a way to participate in any future increases in the market, while protecting against future downturns.

With structured annuities, investors choose a strategy that provides a level of upside potential and downside protection over a specified term, called the crediting period. With greater protection comes less upside potential.

Customize structure

Each structured annuity allows an investor to customize based on four factors:

  1. Reference index: the index on which the returns are based
  2. Crediting period: a period of time used to calculate the interest based on the crediting strategy
  3. Downside protection: the amount and form of protection against a drop in the reference index
  4. Upside participation: the rate and method of used to calculate interest

Market trend

Structured annuities were a mere footnote in the annuity industry just five short years ago. Today, they are a fast-growing segment in the market, as baby boomers move into retirement with a desire to protect a portion of their portfolio from market reversals.

Tech tip

Growing choice in this market can lead to complex allocation decisions – fortunately, digital tools and analytics exist today to help make a challenging decision process more straightforward.

  • Sound a bit like structured investments? Sure enough, insurance companies began developing structured annuities back in 2010 after seeing the success of structured notes, which provided a degree of market upside with reduced downside risk.

  • Working with a professional, an investor can then narrow in on a structured annuity that provides a personalized balance between risk and reward – a balance that can be adjusted over time as needs and objectives evolve.

Source: LIMRA

  • As always, investors should consult with a financial professional on which annuity products and features best fit their needs.

Know that structured annuities:

  • Are complex and subject to risk, including the potential for significant losses
  • Have renewal terms that are subject to change from crediting period to period, at the carrier’s discretion
  • Are not FDIC insured and any guarantees under a structured annuity contract are backed by the issuing insurance company and subject to its claims paying ability
  • Are considered a long-term investment, typically carrying penalties (such as a surrender charge) if money is withdrawn during the stated surrender period
  • Come with an additional 10% federal tax penalty for withdrawals prior to age 59½

READ ON

Our previous article on structured annuities explains how they work and the role they play in an investment portfolio. Find it, along with our complete library of articles and videos on simon.io/engage

1 Bloomberg, SPX performance as measured 3/9/09 low of 676 to 12/31/21 closing level of 4,778.

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©2022 SIMON Markets LLC. All Rights Reserved. | Originally published 2021.09 | Updated 2022.08

This is not intended to be an offer or solicitation to purchase or sell any security or to employ a specific investment strategy. This material is intended as general background information, for educational purposes only, and should not be used as a primary basis to make a decision to purchase an annuity contract. This material is being provided for informational purposes only and does not take into account any specific investment objectives or financial situation of 
any investor. The information is not intended as investment advice and is not a recommendation about managing or investing retirement savings. Actual annuity contracts may differ materially from the general overview provided.

Prior to making any decision with respect to an annuity contract, purchasers must review, as applicable, the offering document, the disclosure document, and the buyer’s guide which contain detailed and additional information about the annuity. Any annuity contract is subject in its entirety is to the terms and conditions imposed by the carrier under the contract. Withdrawals or surrenders may be subject to surrender charges, and/or market value adjustments, which can reduce the owner’s contract value or the actual withdrawal amount received. Withdrawals and distributions of taxable amounts are subject to ordinary income tax and, if made prior to age 59½, may be subject to an additional 10% federal income tax penalty. Annuities are not FDIC-insured. All references to guarantees arising under an annuity contract are subject to the financial strength and claims-paying ability of the carrier. This does not constitute legal, accounting or tax advice, and the recipient should consult with his or her legal, accounting or tax adviser regarding the instruments described in this material.

SIMON Markets LLC operates a technology platform that makes available offerings of structured investments and annuities to financial professionals. In operating this technology platform, SIMON Markets LLC earns revenue based on the volume of transactions that take place in these products and would benefit by an increase in sales for these products. This material may not, without SIMON’s prior written consent, be (i) copied, photocopied or duplicated in any form, by any means, or (ii) distributed to any person that is not an employee, officer, director, or authorized agent of the recipient. SIMON shall have no liability, contingent or otherwise, to the user or to third parties, for the quality, accuracy, timeliness, continued availability, or completeness or to update any data contained in this material nor for any special, indirect, incidental or consequential damages which may be incurred or experienced because of the use of the data made available herein, even if SIMON has been advised of the possibility of such damages. This material was not prepared with a view to public disclosure or to conform with any disclosure standards under any state, federal or international securities laws or other laws, rules or regulations, and SIMON Markets LLC does not take any responsibility for the use of the information in this material.

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