Why So Many People Are Flocking to Annuities

Why So Many People Are Flocking to Annuities

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Despite a strong stock market performance in 2023, Americans seem to have had enough of market volatility. Instead, they have been increasingly turning to a traditional source of safety and security: Annuities.

2022 was a record year for annuity sales — and 2023 eclipsed even that, according to Life Insurance Marketing and Research Association (LIMRA) data. Annuity volume is surging almost across the board, especially for safer products. Consider the following:

  • Fixed annuities — These provide a guaranteed rate of return regardless of changes in the stock market, interest rates or inflation. Sales jumped by 36% year on year in 2023, reaching $286 billion, according to LIMRA.
  • Deferred fixed annuities — These are useful retirement planning tools that allow you to lock in a guaranteed income beginning some years in the future. Sales of these instruments jumped 96% in 2023 compared to 2022, setting an all-time record of $4.1 billion. 
  • Single-premium immediate annuities — These instruments allow retirees to lock in a guaranteed income starting immediately with a single lump-sum payment. Sales rose 43% in 2023 from the year prior.

In contrast, Americans have been turning up their noses at riskier variable annuities, which have returns tied to the stock market.

Variable annuities are often more complex and can come with higher fees, deterring potential buyers who prefer simpler, more straightforward investment options.

Sales of variable annuities fell 17% in 2023, as customers moved to safer and more straightforward alternatives.

Why the shift?

There are multiple reasons Americans have been migrating to annuities:

  • Guaranteed income: An annuity provides a stable, predictable, guaranteed income that you can never outlive. In today’s uncertain times, that’s been an easy sell. 
  • Protection against downturns: With the stock market’s ups and downs, many seek ways to protect their retirement savings. An annuity can offer a buffer against market volatility, ensuring a portion of one’s portfolio is safe from market swings.
  • Longevity risk. As life expectancies increase, there’s a growing concern about outliving savings. Annuities are the only product on the market that provide a guarantee in writing that you will not run out of income, no matter how long you (or your spouse) live. 
  • Attractive payouts. Annuity rates are at historic highs, which means payouts are more attractive than they’ve been for over 20 years. 
  • Tax-deferred growth: The tax-deferred nature of an annuity allows investments to grow without immediate tax implications, appealing to those looking to optimize their tax situation.
  • Lingering inflation concerns. The high inflation of 2022 and early 2023 traumatized a lot of people. Many annuities allow consumers to opt for “built-in” inflation protection, though at a cost of lower initial payouts.

Are annuities right for you?

Annuities aren’t a great match for everyone. They are insurance products designed and built to deliver on guarantees and keep promises over the long haul — not necessarily to maximize growth.

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However, if you’re approaching retirement, or already retired, and you want to protect yourself against stock market volatility while locking in a guaranteed income for life, or for a specific period of time, annuities may be an important part of the solution. Call Us or Contact Us if you want further information on these products.

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