The Debate on Equity Indexed Annuity Returns Continues

Two recent articles continue the often contentious debate on equity indexed annuity returns. 

The first article—titled Real-World Index Annuity Returns—appears in the March edition of the Journal of Financial Planning.  The three authors offer an exploration of equity indexed annuity returns based on actual contracts that were sold. 

The authors—Jack Marrion, Geoffrey VanderPal and David Babbel—conclude that: 

  • The returns of the “real world” index annuities outperformed the S&P 500 index 67 percent of the time. 
  • Further, the returns of index annuities analyzed in the paper outperformed a 50/50 mix of 1 year Treasury bills and the S&P 500 79 percent of the time. 

The authors make note of the exploratory nature of their study and certain limiting aspects of the data set used for the study. 

The second article (actually a letter) is from Robert Huebscher and it is titled Fantasy-world Returns for Equity Indexed Annuities.  Huebscher is the Founder and CEO of Advisor Perspectives

Huebscher’s first criticism is that data-set underlying the “Real World” is not replicable and therefore is unverifiable.  Huebscher offers additional criticism of several aspects of critiques that the “Real World” authors offer in light of previous equity indexed annuity research. 

Huebscher’s letter raises valid points and is worth the time.  

I am not entirely sure whether the Journal of Financial Planning paper is available to non-subscribers.


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