Higher interest rates and an aging population looking for security in retirement have set annuity sales on track for a record sales year. And forecasters predict annuities will retain their newfound popularity with consumers until at least 2027.
Total annuity sales in the first half of 2023 increased 28% to reach $182.7 billion. This total represents the highest sales ever recorded during the first half of a year.
“The remarkable growth of income annuity product sales is a result of broad growth across the industry,” said Todd Giesing, assistant vice president of LIMRA Annuity Research.
Only traditional variable annuities saw declines in the first half of 2023.
Annuity Sales by Selected Type in the First 6 Months of 2023
| ANNUITY TYPE | TOTAL SALES FIRST HALF OF 2023 | PERCENTAGE INCREASE VS. FIRST HALF OF 2022 |
| Fixed-Rate Deferred Annuities | $73.2 Billion | 64% |
| Fixed Index Annuities | $48.5 Billion | 35% |
| Registered Index-Linked Annuities | $22 Billion | 8% |
| Traditional Variable Annuities | $26.2 Billion | -25% |
| Single Premium Immediate Annuities | $6.8 Billion | 93% |
| Deferred Income Annuities | $1.9 Billion | 116% |
Forecasters predict that annuities and other “protection products” will remain in higher demand for the next few years. These products mainly consist of insurance plans that offer financial assistance to your family members in case of death or illness. They include annuities, as well as life and critical care insurance.
Giesing believes that reports in the second quarter about the Federal Reserve’s plan to slow down interest rate hikes encouraged investors who were undecided about taking advantage of the favorable returns annuities offered. LIMRA suggests that there may be a slight decrease in individual annuity sales in 2024 because of a decline in interest rates.
What’s Behind the Trend in Annuity Sales?
Several factors are driving the annuity markets, according to researchers at LIMRA:
- The demand for guaranteed income continues to rise.
- The popularity of products with protection features is persistent.
- Positive momentum from 2022 is sustaining high levels of annuity sales.
- More people are reaching peak annuity buying age.
Higher interest rates also mean higher returns on annuities.
“The annuity product, once the interest rates rise, can become more attractive [in] that the fixed annuity product… will be promising higher payouts,” James Philpot, director of the Financial Planning Program at Missouri State University, told the Annuity.org Podcast.
In the years before the pandemic, financial advisors hesitated to put people into fixed annuities just because the payouts were so unattractive, according to Philpot. And as the economy improves — and inflation wanes — lower interest rates may make annuities a less popular option again.
Giesing echoed the sentiment, saying, “Overall individual annuity sales could see a slight pullback in 2024 as interest rates decrease, yet the favorable demographics combined with improving equity markets will continue to propel sales in a positive trajectory through 2027.”
More Americans Are Reaching Prime Annuity Buying Age
Another factor driving annuities’ popularity is that Americans are aging into the prime age for buying an annuity.
Typically, people buy annuities between the ages of 55 and 70, and the average age of a buyer is in their early 60s. And every day in the United States, over 10,000 baby boomers reach retirement age.
This trend will continue until at least 2030 when every member of the baby boom generation will be at least 65. As demographics shift, more people will consider purchasing annuities, which will affect the future of this market, according to LIMRA researchers.
Annuities in Retirement Planning
According to financial advisor Chip Stapleton on a recent episode of the Annuity.org Podcast, those reaching retirement age may realize that Social Security alone won’t provide enough guaranteed income to pay for their needs.
He added that using annuities in a retirement planning strategy called “income flooring,” makes them an attractive source of retirement income.
With income flooring, you add up all your expenses for things you absolutely have to have — housing, medical cost, food and other monthly payments — to reach a number.
“So let’s say that number is $60,000, and you look at your Social Security and your combined Social Security between you and your partner is $40,000,” Stapleton said. “You have a $20,000 income gap, and what you can do from that point is you can purchase an annuity to fill that $20,000 gap.”
This approach reduces the risk of outliving your savings, allowing you to focus on your desired lifestyle and future goals.
