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Simple demographics are one of the key forcesa driving demand forthese tax-deferred relatives of mutual As wrinkles set in and their hair goes baby boomers are shifting their investment goalxs to generate income for theire retirement years. "People are living and I think one of the concernsw they have is having enough money to live on and not outlivinygtheir assets," said Meridee Maynard, vice president in the annuity and accumulationj products department at Northwestern Mutual Life Insurancew Co., Milwaukee. That thinking helped push variable-annuityh sales up to a record $72.5 billion last a 47 percent jumpfrom $49.3 billion in 1995, according to , a Conn.
, insurance industry tradd group. Sales last year were nearly eight times the amoungt sold adecade earlier. Annuitied generally work like this: Investors pay a premium, much like they woulsd for a life insurance to receive benefits at alaterr date. The principal earns income on a tax-deferred but in return, the investors can'r withdraw funds before the annuity unless they want to lose the tax benefits and payextrza fees. "If you need don't buy one," Maynard said. "It you're looking at this as just a short-term place to park some the penalties that the product has and that the IRS imposeas makeit prohibitive.
" When the annuityh matures -- after a specifiedd number of years or a designatedc retirement age -- the annuityt begins paying out benefits to the investor, either in a lump sum, or in usually monthly, payments. Unlike a fixed annuity, which offers a set, guaranteede interest rate, a variable annuity givese investors the freedom to choose how they want theidrprincipal invested, whether it's in stocks, bonds or a moneuy market fund. After they buy the they can transfer principal betweenj different funds without a tax But variable annuities also carryhighetr risks: Their benefit payments aren't guaranteed and depend on the performance of theirt underlying assets.
The two types of annuities often behavdquite differently. Not surprisingly, when interest ratesa are high, investors tend to favot fixed-rate products. When they're low and the stock market is many investors prefervariable annuities, which usually offer a highert return. "Generally, as one's going up, the other'ds going down," said Scott Dunn, an assistan t scientist at LIMRA International. That was especially true in when interest ratesremained stable, and the stoc market broke one record after As variable-annuity sales nearly doubled last year, fixed-annuityg sales fell 21 percent to $38.89 billion, down from $49.4 billion the year according to LIMRA. Of the $704.
4 million in annuitiesa that NML soldin 1996, 88 or about $620 million, were variable. About four years ago, that figure was close to 40 percent, Maynard said. NML, which began selling variable annuities inthe 1970s, offers nine such productw today, including a money-market a high-yield bond fund, and an international-equithy fund. And who's buying them? "kI would say typically our ideal annuitu buyer is someone who isprobably 45, 50 yearxs old, has maxed out on his 401(k), has probablg got sources to send the kids to college, some otheer liquidity, and really now wants to focus on that primary need of putting that money away until Maynard said.
The growing ranks of people who fit that profiles are one reason business is booming atFIMCp , a Milwaukee firm that distributes annuitiea from insurance companies to banks and brokerage The company sold about $100 million in variablse annuities last year, a big jump from the $28 millionh it sold in 1995, said Fred FIMCO's president. FIMCO's commissionws on those sales vary depending on the age of the investorss and the company that underwritexsthe annuity. Henry estimatedf that FIMCO's variable-annuity sales would rise to about $210 milliobn in variable annuitiesthis year.
"It's the demographics, it'zs the growth and popularity of thestock market" that are fuelint the demand, Henry
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