Updated September 22, 2023, at 3:41 PM
Did you know that annuity sales are on the rise? The Secure Retirement Institute (SRI) released its U.S. Individual Annuity Sales Survey identifying a record in annuity sales. These sales were up 14% over the first quarter of 2021 at $35.2 billion.
The increase comes on the heels of woeful annuity sales in 2020 at the height of the pandemic when markets nose-dived by 30% alongside threats of a total economic shutdown.
The primary purpose of an annuity is to generate a dependable income stream in retirement. This can help diminish consumer fears of running out of money too soon after retiring. They offer a variety of choices for flexibility and customization. There’s an abundance of plans and options to suit individual retirement goals and objectives.
Annuities also provide predictable income to help their owner know how much revenue they have coming in. In addition, an annuity can provide another source of savings. They’re also one of the few financial tools their owners don’t have to constantly tweak, making them easy to maintain.
Product innovations are creating new annuity solutions to meet ever-changing consumer needs. A better understanding of offerings and accessibility to achieve individual goals in retirement is compelling now more than ever.
Market volatility, the war in Ukraine, and fundamental regulatory changes such as the SECURE Act create avenues for annuities to be exhibited in a new light.
Public Perception Plays a Role in Annuity Sales
When the idea of decreased life expectancy and overall fears were high, consumer focus moved away from annuities to life insurance. Favored by investors and families during the pandemic’s peak, the demand for life products climbed proportionally to the consumers’ awareness of their mortality.
Life insurance provides a secure way to protect loved ones, transfer wealth, and entrust accumulated assets. In April 2021, a survey conducted by the Life Insurance and Market Research Association (LIMRA) found that 31% of consumers said they were more likely to purchase life insurance because of the pandemic. In September, Life Insurance Awareness Month brought an additional boost to life sales when insurers made it easier to obtain policies.
Post-pandemic attitudes are edging out the fears that invigorated life sales over the last few years. As life insurance sales appear to be leveling off, there’s a renewed interest in investing for growth with minimal risk.
Life insurance provides the beneficiary with a lump-sum fiscal payout. In contrast, annuities provide a financial cushion to alleviate income falling short in retirement. They both offer tax-deferred alternatives to traditional stock and bond investments.
In our post-pandemic marketplace, payouts from annuity products move higher alongside Fed benchmark interest rate hikes, making them more attractive. An annuity revenue stream can be set for a certain number of years, or lifetime payouts, depending on the contract with the insurer.
Annuities are a practical investment tool. They hold their value hedging risk as the stock market remains uncertain.
It’s an exciting time to invest in annuities as interest rates continue their climb. Offering a flow of regular income like Social Security and pensions, buyers find payouts are better today than they were several months ago. This trend will likely continue as the Federal Reserve sets its eyes on raising interest rates to tame high inflation.
Finding the Right Annuity for Clients
A suppressed demand for investments offering both protection and growth, as well as an increased rate environment, could be the reason behind the uptick in annuity numbers. The US reported the highest annuity sales numbers since the great recession of 2008.
As investors explore annuities as a portion of balanced portfolios, there are some necessary considerations. Knowing the type of annuity that’s best suited for the desired outcome or retirement path is one aspect.
Another important detail is understanding how economic factors impact a retirement income from an annuity. Right now, bond rates are increasing alongside interest rate hikes. This provides better yield to insurers who invest in corporate bonds. The increased yield provides an extra percentage that can be pushed back to the original investor or client.
Recently, multi-year guaranteed annuities (MYGAs) have had an uptick. “Risk-averse clients are viewing rising interest rates as a huge buying opportunity,” says Brian Bailey, a vice president here at FIG. “Many of these investors have been experiencing low-interest rates in bank CDs for years.”
Brian dubs it a “psychological trigger.” For instance, let’s say rates move above 3% or more, and clients begin purchasing MYGAs. These are fixed annuities with a guaranteed fixed payout rate for a set period of years.
An essential step in wealth planning is seeking advice from a qualified financial professional who can answer any questions and create clarity. This measure will improve insight into investment products and strategies, allowing investors to navigate retirement years successfully.
Don’t Forget Other Retirement Income Options
Now that you’re aware of the rise in sales, the annuity avenue shouldn’t be treated as the end-all-be-all for retirement income. For a holistic approach to wealth management, income planning for retirement should involve multiple factors.
Current popularity and the rise in sales will entice many bandwagon investors to climb aboard the annuity train. Knowing options, economic factors, and their impact on retirement is the best way to make an educated investment.
Purchases and holdings should align with retirement goals. Prospects and clients are urged to seek advice from qualified financial professionals like yourself to ensure a wide range of investments for a balanced portfolio in the retirement years.
Getting this professional consultation can be a preventative measure for their buyer’s remorse—a real possibility when purchasing based on trends instead of uncovering all the necessary details. You can help clients sort the ins-and-outs and ups-and-downs, guiding them to the right choices.
With your help, they can see the big picture, know details about products, and make sound, unemotional financial decisions unique to each client’s situation.
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The information within this document is for educational purposes only and does not constitute legal, tax or investment advice. Customers should consult their tax or legal professional regarding their own unique situation. Annuity products and their related features, benefits, and/or guarantees are backed by the claims paying ability of an insurance company.