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Why Annuity Sales Are Booming
The macroeconomic data tells only part of the story .
By Ben Mattlin
LAST YEAR , ACCORDING TO DATA TRACKer Limra , U . S . annuity sales reached $ 385 billion , marking the second straight year of record highs . Limra attributed this sales run to a combination of rising interest rates , market volatility , demographic shifts and greater demand for retirement-income security . All true , no doubt . But that ’ s only part of the story . Industry experts point to a number of other developments in the evolution of annuities that are also driving unprecedented sales .
Guaranteed Lifetime Income
To be sure , macroeconomic trends are contributing to this surge . As the population ages , and post-earnings / retirement years grow longer , more people are worried about the possibility of outliving their savings . Not all annuities have lifetime income benefits , but the ones that do are the only products on the market that guarantee retirement income until death , which means they can help solve the problem of “ longevity risk .”
“ New research shows retirement savers are eyeing guaranteed lifetime income products ,” says Whit Cornman , a spokesperson for the American Council of Life Insurers in Washington , D . C .
David Blanchett , the Lexington , Ky . -based head of retirement research at PGIM , the investment management group of Prudential , adds that increased interest in annuities is primarily “ driven by the realization among advisors that you can ’ t solve retirement with a portfolio-only solution .”
Annuities , he says , can “ do something a regular portfolio can ’ t , which is provide protected / guaranteed income for life .”
FIAs and RILAs
At the same time , however , insurance companies have been developing new types of annuities that many people find irresistible . The two biggest-selling types are :
• Fixed-index annuities ( FIAs ), which are fixed-rate annuities that track a market index and have total downside protection , meaning you cannot lose money . In exchange for that you have a cap on the upside potential , too ; and
• Registered index-linked annuities ( RILAs ), which are variable annuities that give owners an even higher percentage of market gains in exchange for limiting the losses .
“ RILA purchasers are typically seeking a product with less risk than a traditional [ variable annuity ] but more upside than a FIA ,” says Jay Charles , director of annuity products at Luma Financial Technologies in New York City .
These products allow clients to “ tailor a combination of protection levels … to meet their risk tolerance , individual investment style and retirement-income planning goals ,” says Tim Seifert at Lincoln Financial Group in Radnor , Pa .
MARCH 2024 | FINANCIAL ADVISOR MAGAZINE | 51