Although fixed indexed annuities have been around for approximately 20 years, the last few years they have seen wild growth in both sales and popularity. In many respects, it was a perfect storm for the fixed indexed annuity as the 2008 financial meltdown quickly reminded baby boomers how important that safety is to their portfolio, not to mention this also collided perfectly with the first wave of 10,000 baby boomers per day turning 65. For those of you not aware of a fixed indexed annuity, it is considered a fixed annuity (versus a variable annuity, aka a security product with a prospectus) that has returns tied to an index (usually with some form of cap “annual maximum”), has some form of a guaranteed minimum, and an ability to create a contractual lifetime income stream. There are too many different variables of these features to list, but hopefully the description gives you an idea (for more in depth information, visit Annuity Think Tank).
So what does a Hybrid Indexed Annuity have to do with a fixed indexed annuity? We asked ourselves the same thing a few years ago when we first heard financial professionals start marketing “hybrid annuities” that turned out to just be normal fixed indexed annuities. Based on our research, the term hybrid annuity has been around for quite some time to describe an annuity that has a blend of both fixed and variable annuities. More precisely, that it was a term first used in conjunction with variable annuities. However, we can also see how today’s fixed indexed annuities can also correlate with the word “hybrid” as both of these retirement products (fixed indexed and variable annuities) have converged so much that it would be tough to discern the difference in any “Annuity Challenge Blind Taste Test” if you were doing it on features alone. If you compared fees, it would be much easily discernible. Either way, it appears as though the term “hybrid annuity” has slowly morphed into a description for fixed indexed annuities.
What is the moral of the Hybrid Annuity story here? To be careful what you are being sold, and educate yourself on all of the features. The chances are that if you are being marketed to or sold a “hybrid annuity” today, it is most likely some sort of fixed indexed annuity (not a variable). There are countless types of fixed indexed annuities and not a single one that can be a fit for everyone. Just like they make different cars, investments, houses, etc to fit a specific person or family, the same goes for fixed indexed (aka hybrid annuities). Stay educated and best of luck in retirement!