Annuity Guys®

Annuity Rates, Features & Ratings: America's trusted annuity resource. Compare best options for hybrid, index, fixed, variable & immediate annuity quotes.


Helping You Create Great Results Your Retirement Deserves!



(217)753-1515
  • Home
  • About Us
    • About Us
    • Contact Us
    • Site Terms & Disclosure
    • Privacy Policy
  • FAQs
    • Most Frequently Asked Annuity Questions
  • All Annuity Guys Videos
  • Annuity Types
    • Best Annuity Reviews
    • Market Free™ Annuities
    • Choosing an Annuity
    • Deferred Annuities
    • Hybrid Annuity Choices
      • Hybrid Annuity Pros&Cons
      • Hybrid Income Riders
      • Hybrid Annuity Guarantees & Strategies
    • Fixed Annuity Choices
      • Fixed Annuity Performance
      • Better Fixed Annuities
      • Fixed Deferred Annuities
      • Fixed Rate Annuities
      • Fixed Annuity Alternatives
      • Fixed Annuity Pros & Cons
      • Fixed Annuity Negatives
    • Index Annuity Choices
      • Fixed Index Annuity Features
      • Fixed Index Annuity Performance
      • Better Fixed Index Annuities
      • Fixed Index Annuity Alternatives
      • Fixed Index Annuity Pros & Cons
      • Fixed Index Annuity History
      • Fixed Index Annuity Negatives
    • Immediate Annuities
      • Immediate Variable Annuity
      • Immediate Fixed Annuities
    • Variable Annuities
      • Variable Annuity Features
      • Better Variable Annuities
      • Variable Annuities Disadvantages
      • Variable Annuity Alternatives
      • Variable Annuity Negatives
      • Variable Annuity Performance
    • Pre-Issued Annuities™
      • Hybrid Annuities versus Pre-Issued Annuities ™
    • Annuity Glossary
  • Articles
    • How Do MarketFree™ Annuities Work?
    • Are Annuities Safe?
    • Living Benefits
    • FIA Performance
    • Beware of FIAs?
    • Annuities & Retirement
    • Annuities & Estate Tax
    • Rollovers & Annuities
    • Annuities & Tax
    • Charity & Annuities
    • The Lost Decade
    • Best Annuity Videos
    • Social Security Benefits
  • Calculators
    • Retirement Planning Calculator — Basic
    • Retirement Shortfall Calculator — Basic
    • Immediate Annuity Calculator & Quotes
    • Fixed Index Annuity Calculator & Fixed Annuity Calculator
    • Variable Annuity Calculator & Hybrid Annuity Calculator
  • Blog
    • Annuity Guys® Weekly Annuity Video Blogs
  • Get Annuity Guys Help
    • Request Annuity Guys’ Planning Help Today
You are here: Home / Archives for Market Index

Fixed Index Annuity Returns Reviewed

February 29, 2012 By Annuity Guys®

Dick and Eric take a look at the Wharton study and what it means for anyone considering a fixed index annuity as the chassis for the hybrid annuity.

[embedit snippet=”video-specialist-button-index”]

 

**Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified.

In 2010 the Wharton Financial Institutions Center updated their published study on the empirical performance of fixed index annuities based upon the products offered and the actual interest credited. What Jack Marrion, Geoffrey VanderPal and David Babbel found was ground breaking and eye opening for many in the financial world.

Their findings dismissed most of the previous studies concerning fixed index annuities due to erroneous findings based upon hypothetical data and non-valid assumptions. What the Wharton Study found was that during specific time periods fixed index annuities actually performed competitively with alternative portfolios of stocks and bonds.

Index annuities were originally introduced in the United States approximately twenty years ago as an alternative to mutual fund^s. These annuities allow their holders to participate in growth from stock market indexes, yet prevent the risk of loss to the annuity owner’s principal in years when these popular indices produce a loss. This type of annuity has produced much higher annuity rates or interest crediting than traditional fixed annuities.

Due to this feature, money flowed very quickly into these types of annuities during the Great Recession of 2008-2009. In fact, according to LIMRA over 30 billion dollars flowed into fixed index annuities during both 2010 & 2011 and now represent 41 percent of fixed annuities sold annually (LIMRA, 2-16-12).

Why would money flow into financial instruments in such a volatile environment? Fixed index annuities during their history have actually performed competitively and even outperformed popular market indexes during period of high volatility.

To quote the Wharton study, “How will index annuities perform in the future? We do not know but the concept has proven to work in the past and any articles should reflect this. FIAs were not designed to be direct competitors of index investing nor have FIAs been promoted to provide returns to compete with equity mutual fund^s or ETFs. The FIA is designed for safety of principal with returns linked to upside market performance.”

Annuity Guys® Video Transcript:

DICK: You know we’re here today to talk about the Wharton Study and Eric, before we get into the Wharton Study here and I know this kind of ties into it, but let’s just talk about fixed index annuities, which is what the Wharton Study is about. Let’s talk about the popularity of fixed index annuities in recent years.

ERIC: Well, it comes into why did we decide on this topic today? Just recently LIMRA came out and gave us some of the tallies from 2011 about what the most popular annuities and the flavors of annuities that were out there, were and of the fixed annuity chassis, so to speak, of that flavor indexed annuities amounted for 44% of the sales in the fixed annuity chassis world, which was over $30 billion, about $32 billion in sales of fixed index annuities.

DICK: And that’s been going on for the last couple of years.

ERIC: Yes, they’ve been increasing popular ever since they kind of came into existence in 1995. They’ve kind of gradually built, built, built and now they’re pretty consistent at being over $30 million in sales.

DICK: Yep, which is very good, and one thing I’d like to do is maybe tie that back into the Wharton Study, which we were talking about. We’ve got up on the board and he’s sitting in front of us. The Wharton Study folks, if you haven’t read it yet, it’s available in our annuity reviews blog, so you can get the link there.

But you might find it to be good reading, because it actually takes what was just assumptions that were maybe based on erroneous types of assumptions and actually brings it down to real data, so that we can actually look at fixed annuities and compare it even to the popular indexes like the S&P 500, and just see how it really performed.

ERIC: Well, and I like some of the fascinating statistics they toss in there. They look at indexed annuities being part of an index and one of the things they analyze and they break down is the Russell 3000, and I just find that index comparison fascinating, because they say the Russell 3000 takes into account 98% of the stocks that are out there. They said that when they looked at their analysis between 1983 and 2006, that has 98%t of the stocks, publicly held in that index.

DICK: Yes.

ERIC: Of that and this is the fascinating statistics for me, 40% of those stocks had a negative return during that time period, 20% lost all their value, while about 10% gained over about 500%. So and what their determination was, when they said you’re better off picking the index because you’re going to cover all those bases. You’re either going to get those big returns, and if you’re picking individual stocks…

DICK: Well, you could be on either side. And the chances are much more likely to be on the downside.

ERIC: You can hit the home run or you can hit the strikeout, and you’re back on the bench.

DICK: Right, let’s talk about the last decade or so, 10-12 years. What we call the lost decade, and how did fixed indexed annuities; I’m asking a rhetorical question here; but how did fixed indexed annuities compare to let’s say, the S&P 500 during that let’s say the first decade of the 21st century?

ERIC: If you take the decade as a whole, you know, everyone kind of looks at the 2000 to 2010, you know the S&P was basically flat.

DICK: Right, we call it the lost decade.

ERIC: There was nothing there, but if you were in the indexed world you got good returns.

DICK: And when we’re saying the indexed world, we’re talking about fixed indexed annuity world.

ERIC: Right, in this case we’re talking about it from an indexing standpoint, because of how indexing works, you get the gains and then you lock them in. Get the gains. Lock them in. Now when the losses come, you’re locked in so you don’t take that that bad.

That’s what we call zero is your hero. We’ve kind of talked about that a couple times and that’s where this comes in and it points out, the Wharton Study points out that, because you’re not having those big drops, you’re returns over a period of time, were actually pretty good. Are we predicting future performance with this kind of study?

DICK: It’s going to outperform the market in a good market? I would say no. But on the other hand, I’ve had a lot of folks that have actually sat down and we’ve talked about that difficult time like with the S&P and the major indexes. When we look at the fixed indexed annuity and we look at several of the different annuities that have performed during that time and it’s more now in the Wharton Study, is that they also outperformed those indexes.

The reason they could do it is, just what you were explaining and that is because when the index drops dramatically with a fixed indexed annuity that actually locks in all the gains that it’s had. It might just have a zero; no increase in that particular year, but now it’s locked in at a new low. So what happens the next year? The market goes up. Maybe the market doesn’t go up enough to make up all that it lost, but any gain that it has a portion of that goes to the fixed indexed annuity.

ERIC: Right, so you’re interest in crediting, coming off of a bad year is a good thing.

DICK: Is a good thing, right. So that in essence that allows it in extreme volatility or flat or down to actually produce a real return, where the market can’t produce a return, but the fixed indexed annuity can. Let’s talk a little bit about the way that a fixed indexed annuity actually is able to accomplish this. I mean a little bit of the inner workings, the mechanics of it.

ERIC: I’m not a brain surgeon, but I can tell you that they utilize options, put options, and call options.

DICK: Well, call options is what they’re using.

ERIC: Primarily, to basically buy pennies on the dollar. You’re buying the indexed, the strategies of the indexing, so you’re buying pennies on the dollar and if you get the gains, you get big returns and if you get losses, they expire or basically become worthless.

DICK: Right, exactly. They allow the options to expire for pennies on the dollar and these large companies are in a position to have the type of financial management, to continue to manage money in this way. And let me also take this in the other sense of the safety of the annuity.

The actual premium that’s put into the annuity is fully **guaranteed, in the sense that it’s invested in treasuries, investment grade bonds, very high-quality investment instruments, so that it can **guarantee that the principal will be safe, and that there’ll be a minimum return. It’s **guaranteed by fixed indexed annuity company, even if the market doesn’t perform or the call options don’t perform.

ERIC: They’re using the power of leverage. I mean it really is that way, that’s how they’re making those dollars and bringing those returns, those interest crediting back to you.

DICK: And now we do know that the fixed indexed annuity performed very well during what we call the lost decade, and actually outperformed many of the indexes that it was being used to measure against. I can see why that drove a lot of business into the fixed indexed annuity market. Now as of late, of the last couple of years what we’ve experienced has been lower caps, and yet fixed indexed annuities have continued to sell like crazy. People have continued to pour money into these, to the tune of $30 billion, last year $32 billion.

ERIC: And I will tell you it’s just another safe money alternative, when you compare it to money market accounts, CD account, but your opportunity for growth, we never thought 3.0% sounded like a slam dunk, but 3.0% is a great return, when your CDs are paying a .50%, your money markets are paying a .75%. Three percent, all you need is one good year to get you a 3.0% return, and it kicks the butt of anything that you had from the bank.

DICK: Well, and then we come into this whole hybrid annuity concept, where it uses the fixed indexed annuity chassis and then it has this innovative income rider on it that **guarantees 8.0% compounding. Because what we find, Eric in our practice, is that many of our clients actually need income.

ERIC: Right. We should say that the 8.0% is not on every annuity rider.

DICK: Yeah, well, 7.0-8.0%, some of them the lowest are 6.0% on some of them.

ERIC: The riders out there in deferral are what you can use to **guarantee income and that is a huge predictability for retirement income, and so when people are looking at a fixed indexed annuity and then taking in that additional rider option, it becomes a very powerful thing and even compounds what they found in the Wharton Study.

DICK: Right, right and I do believe from everything that I read and see and hear that, as we have more and more baby boomers they’re coming into retirement and they have to have answers for secure income. What we would call a pension style foundation to the portfolio that annuities are going to continue to be a viable answer in that area.

ERIC: We’re seeing more and more endorsements. We’re seeing them endorsed by the government, endorsed by people like ourselves, who are retirement planners, and basically becoming a large portion of what you should utilize, perhaps as part of your retirement.

DICK: As a portion of your portfolio. Well, I think that we’ve covered the Wharton Study in the sense of the general idea of what it’s about and really want to encourage you to check it out.

ERIC: Check it out. Yeah, check it out online. We’re more than happy to put a link out there on our site, so take a look.

DICK: Thank you.

Filed Under: Annuity Commentary, Annuity Guys Blog, Annuity Guys Video, Fixed Annuity, Fixed Index Annuity Tagged With: annuities, Annuity, Annuity Return, Equity-indexed Annuity, Fixed Annuities, Fixed Indexed Annuities, Index, Index Annuities, Insurance, Life Annuity, Market Index, retirement

 

Empowering Annuity Reference Book

 
DOWN-LOAD NOW - FREE!
  • Annuity Guys Reference Book - 250 pages of Annuity Facts

  • "The New Retirement"
    Annuity Reference Book 
    Free Instant Download
  • Confidential - Easy Opt Out
  • This field is for validation purposes and should be left unchanged.

 

  • Should You Choose a Variable Annuity?

    Should You Choose a Variable Annuity?

    Occasionally, we get requests from our site visitors and viewers to help them review a particular annuity – like that from …Read More »
  • Avoiding Annuity Gimmicks, Amateurs, & Charlatans!

    Avoiding Annuity Gimmicks, Amateurs, & Charlatans!

    Everyone loves a good practical joke – until the joker happens to be the salesperson who just sold you an annuity …Read More »
  • Millions of Pensions Dumped – Can Annuities Fill the Gap?

    Millions of Pensions Dumped – Can Annuities Fill the Gap?

    Every time you turn on the news it seems we are bombarded with information on pension reform or the scaling back …Read More »

Revealing Fun Video: Fiduciary Advisors Vs. Annuity Salesmen
MUST KNOW FACTS 90% of
ANNUITY ADVISORS AVOID TELLING!
  • *FIDUCIARY RETIREMENT REVIEWS
    Second Opinions Improve Retirements
     
    "For Your Retirement's Success"
     Choose a *Fiduciary Advisor who gives you Full Disclosure of Cost & Selection.
     
    Material Fact 1:
      About 90% of advisors ARE NOT REQUIRED by law to do what is best for their clients!
     
    Material Fact 2:
     Fiduciary Advisors ARE REQUIRED by law to do what's best for their clients! 
     
      Hence, clients of a fiduciary can know that their advisor chose the highest legal standard required by law to work strictly for their highest good.
     
     We estimate Fiduciaries are less than 10% of total U.S. financial service providers. Fiduciaries are held to the highest client legal standard of financial planning and investment advice.
     
     The other 90% are sales oriented advisors, brokers, bank reps, registered reps. & insurance agents, selling products on a much lower suitability legal standard, not necessarily what's best for their client!
     
       Fiduciaries also must disclose conflicts of interest that could potentially bias their advice, such as; selling products that pay them higher commissions having higher fees or costs, and their lack of investment product access limiting their client's opportunities, to name a few.
     
    Choosing your advisor can have
    "The Largest Single Impact on
    Your Retirement's Success or Failure"


  • Annuity Scams – Fear Factor or Reality?

    Annuity Scams – Fear Factor or Reality?

    The Internet is full of warnings and alerts about annuity scams that create the appearance of  industry run amok with …Read More »
  • Are Annuities Best in a Difficult Economy?

    Are Annuities Best in a Difficult Economy?

    Dick and Eric reflect on a email they received this week highlighting a Tony Robbins video (see below) on the …Read More »
  • Annuities versus Securities

    Annuities versus Securities

    When you build a house, you don’t start with the roof – you start with the foundation. For many retirees annuities help …Read More »
  • What do index annuities, mutual funds and ETFs have in common?

    What do index annuities, mutual funds and ETFs have in common?

    Fixed index annuities, mutual funds^, and exchange traded funds (ETFs) could not possibly have very many things in common or …Read More »
  • Why do 84 percent of Retirees want Annuities but only 14 percent buy them?

    Why do 84 percent of Retirees want Annuities but only 14 percent buy them?

    “You can’t always get what you want; but if you try, sometimes, well you just might find you get what …Read More »
  • How Do Index Annuities Pay Higher Interest?

    How Do Index Annuities Pay Higher Interest?

    Okay, what’s the catch? How is it possible that a fixed index annuity (FIA) can eliminate market risk and earn higher interest than standard fixed annuities …Read More »
  • Smooth Market Volatility with Fixed Index Annuities

    Smooth Market Volatility with Fixed Index Annuities

    We all have heard the saying “what goes up, must come down” However, when it comes to your retirement portfolio …Read More »
  • Fed Up with Exaggerated Annuity Claims?

    Fed Up with Exaggerated Annuity Claims?

    There is a saying in the annuity world that annuities are sold, not bought! Yes, at times this may be …Read More »

View Our Newest Videos! Subscribe Now
  • Annuity Guys Videos - Annuity Answers
  • New Annuity Guys Videos
    Our Entertaining & Informative
     Saturday Morning Video Blog
  • Timely Retirement & Annuity Issues - Easy Opt Out
  • This field is for validation purposes and should be left unchanged.


  • Annuities vs (IUL) Indexed Universal Life – How do they compare?

    Annuities vs (IUL) Indexed Universal Life – How do they compare?

    What are the differences between a hybrid index annuity and an (IUL) index universal life policy? Wow! Steve, we thought we …Read More »
  • Annuities and Christmas – Do They Have Anything in Common?

    Annuities and Christmas – Do They Have Anything in Common?

    Only Annuity Guys® like us would sit around the office and discuss topics like this… Annuities and Christmas – what …Read More »
  • Five Common Annuity Regrets to Avoid

    Five Common Annuity Regrets to Avoid

    Most of us have a few regrets in life… but seriously – annuity regrets???Perhaps we have gone too far as …Read More »
  • Why are Markets and Annuity Sales at All Time Highs?

    Why are Markets and Annuity Sales at All Time Highs?

    Equity markets increasing and annuity sales increasing at the same time is a little like cats and dogs playing together. …Read More »
  • Hybrid Annuities have too many moving parts… Says Who?

    Hybrid Annuities have too many moving parts… Says Who?

    What makes a Hybrid Annuity different from a Fixed Annuity? Answer: index strategies, an income rider, and the contractual **guarantees associated …Read More »
  • Is an Old Variable Annuity Better than a New Hybrid?

    Is an Old Variable Annuity Better than a New Hybrid?

    “Don’t buy an annuity! The **guarantees they offer are often unnecessary and costly.” – has turned into “that annuity sure …Read More »
  • Annuity Diversification – What Amount Per Company?

    Annuity Diversification – What Amount Per Company?

    You may have invested, scrimped, and saved most of your life for just this moment. Yes, you are ready to …Read More »
  • Top Five Reasons, Not to Buy an Annuity!

    Top Five Reasons, Not to Buy an Annuity!

    Let’s be honest, there are plenty of reason why someone should not buy an annuity. As Annuity Guys, we understand …Read More »
Get Newly Released Annuity Guys® Videos on Saturday Mornings
  • Annuity Guys Videos - Annuity Answers
  • New Annuity Guys Videos
    Our Entertaining & Informative
     Saturday Morning Video Blog
  • Timely Retirement & Annuity Issues - Easy Opt Out
  • This field is for validation purposes and should be left unchanged.


  • Are Set It & Forget It Retirements Practical?

    Are Set It & Forget It Retirements Practical?

    Have you ever put a pizza in the oven only to discover you forgot the timer and your meal is …Read More »
  • Annuities: What Percentage Should Be in Your Retirement Portfolio?

    Annuities: What Percentage Should Be in Your Retirement Portfolio?

    The answer is… 50 percent (NOT!!!) — want to know why many insurance sales agents might say that?It’s nice when …Read More »
  • Annuities – The Best Financial Product No One Wants!

    Annuities – The Best Financial Product No One Wants!

    Why would an insurance actuary call annuities the best financial product no one really wants? And why would he go …Read More »
  • Avoid Tax Moving IRAs and 401Ks to Annuities

    Avoid Tax Moving IRAs and 401Ks to Annuities

    Death and taxes may be certainties of life… but it doesn’t mean we should not do all we can to …Read More »
  • Top Five Annuity Lies!

    Top Five Annuity Lies!

    There are annuity white lies, damnable annuity lies, and some liar-liar, sales agent/advisors who hope you won’t notice that their pants are on fire! …Read More »
  • Is the Fiscal Cliff a Threat or an Opportunity for Annuities?

    Is the Fiscal Cliff a Threat or an Opportunity for Annuities?

    The “Fiscal Cliff” could have profound implications on the economy. Dick and Eric examine the potential impact on retirees and …Read More »
  • Why do 84 percent of Retirees want Annuities but only 14 percent buy them?

    Why do 84 percent of Retirees want Annuities but only 14 percent buy them?

    “You can’t always get what you want; but if you try, sometimes, well you just might find you get what …Read More »
  • Is a Pre-Issued Annuity right for you? – Part 1

    Is a Pre-Issued Annuity right for you? – Part 1

    This is a two part blog on Pre-Issued Annuities. In part 1 we will examine some of the reason why …Read More »
  • Are You Too Young or Old to Purchase an Annuity?

    Are You Too Young or Old to Purchase an Annuity?

    What is the best age to purchase an annuity?There have been a plethora of articles and reports about unscrupulous agents …Read More »
  • Who Should Choose Annuities?

    Who Should Choose Annuities?

    What type of individual chooses to purchase an annuity?Is there a stereotypical annuity enthusiast? Maybe not – however, we know …Read More »

 

Empowering Annuity Reference Book

 
Start Reading Now - Instant Download
  • Annuity Guys Reference Book - 250 pages of Annuity Facts

  • "The New Retirement"
    Annuity Reference Book 
    Free Instant Download
  • Confidential - Easy Opt Out
  • This field is for validation purposes and should be left unchanged.

 
Comprehensive Site Terms and Disclosure | Privacy Policy | Copyright © 2025 Annuity Guys®


  ** Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. Annuities are not FDIC insured and it is possible to lose money.
Annuities are insurance products that require a premium to be paid for purchase.
Annuities do not accept or receive deposits and are not to be confused with bank issued financial instruments.
During all video segments, Dick and Eric are referring to Fixed Annuities unless otherwise specified.


  *Retirement Planning and annuity purchase assistance may be provided by Eric Judy or by referral to a recommended, experienced, Fiduciary Investment Advisor in helping Annuity Guys website visitors. Dick Van Dyke semi-retired from his Investment Advisory Practice in 2012 and now focuses on this educational Annuity Guys Website. He still maintains his insurance license in good standing and assists his current clients.
Annuity Guys' vetted and recommended Fiduciary Financial Planners are required to be properly licensed in assisting clients with their annuity and retirement planning needs. (Due diligence as a client is still always necessary when working with any advisor to check their current standing.)



  # Investors should consider the investment objectives, risks, charges and expenses of a variable annuity and its underlying investment options. The current prospectus and underlying prospectuses, which are contained in the same document, provide this and other important information. Please contact an Investment Professional or the issuing Company to obtain the prospectuses. Please read the prospectuses carefully before investing or sending money.


  ^ Investors should consider investment objectives, risk, charges, and expenses carefully before investing. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.


  ^ Eric Judy offers advisory services through Client One Securities, LLC an Investment Advisor. Annuity Guys Ltd. and Client One Securities, LLC are not affiliated.