Fixed index annuities are rising in 2024 due to market-linked growth, tax advantages and protection against losses. Popular among retirees, they offer steady income, moderate growth and principal protection in a volatile economy, making them a smart choice for retirement planning.
Fixed annuities are rising in late 2024, comprising most annuity sales in 2024.
According to S&P Global Market Intelligence analysis, overall U.S. annuity sales are up $56.9 billion for the year’s first half, to $300.67 billion. That’s up from $241.07 billion for the first half of 2023.
Of those sales, fixed-rate deferred annuities were up 16.3% over the 2024 time period, while fixed index annuities (FIAs) were up almost 23%.
Industry experts cite two primary reasons for fixed annuity growth in 2024, especially for fixed index annuities. These annuities track underlying market indexes like the Dow Jones Industrial Average, rewarding annuity holders from index gains and limiting principal losses when an index declines.
Why Are Fixed Annuities Growing?
The aging U.S. population is growing as Generation X begins to join the Baby Boomers in retirement. Data from the U.S. Census Bureau shows that, in 2012, 76.4 million Baby Boomers resided in the U.S.. In 2021, the Generation X population stands at 66.7 million. With so many income-minded U.S. citizens either nearing or already in retirement, fixed index annuities are soaring in popularity.
Another reason for fixed annuity growth has to do with the U.S. economy itself. Investors and economists are concerned about the economy, where high debt, high inflation and low consumer confidence are the order of the day.
According to Gallup, most US adults “feel worse off” than they did in 2020. Gallup’s Economic Confidence Index, a fundamental consumer sentiment reading, fell 26% in October, 2024.
Fixed Annuities in Ascent
With the above factors in play, fixed annuities are rising. What’s more, they’re not showing signs of abating anytime soon – and these ascending factors are why.
Economy and Interest Rates Trending Toward FIAs
“It is a great time to buy a fixed-indexed annuity,” says Tanmay Gupta, head of competitive and market intelligence at MassMutual. “Consumers favor annuity contracts whose interest is linked, in part, to the performance of a market index, and having their principal protected from index losses.”
This characteristic provides growth potential with protection from loss during volatile markets.
“With the Fed pivoting towards interest rate cuts in 2024 and beyond, the payouts on plain fixed annuities should come down proportionately, making FIAs potentially more attractive in a rising equity market and falling interest rate environment,” Gupta notes.
Tax Advantages
Gupta says fixed index annuities and fixed rate annuities help policyholders achieve retirement-oriented financial goals through tax-deferred buildup and product riders, which can give guaranteed lifetime income benefits.
“Fixed annuities are often purchased by those who fear outliving their money as they provide fixed payouts, potential lifetime payments, tax-deferred build-up, and protection for individual and/or spouse,” he adds.
Common Ground
FIAs also provide a middle ground between conservative fixed and more volatile variable annuities.
“They protect your principal while allowing for growth tied to market indices, offering the potential for higher returns without direct market exposure,” says Steven Kibbel, a certified financial planner and senior editor at InternationalMoneyTransfer.com. “This combination can benefit retirees aiming to preserve capital and achieve moderate growth.”
Besides protection against market downturns, Kibbel cites another big reason why retirees are so bullish on fixed-income annuities right now. “FIA’s provide guaranteed income,” he says. “They provide a steady, predictable income stream, which can be crucial for budgeting in retirement.”
Relatively Lower Risk
Fixed annuities are generally low-risk products.
“As you go from fixed annuities to fixed-indexed annuities to variable annuities, the risk of loss increases,” Gupta says. “The biggest risk associated with a fixed annuity is that the policyholder premiums may be tied up until the surrender period of the policy.”
In this scenario, policyholders may be unable to access the build-up value. “Fixed annuity durations can range from three to 15 years,” Gupta says. “It’s important to understand the duration of a fixed annuity policy before purchasing one.”
Buying Fixed Income Annuities
Kibbel says fixed annuities are available through insurance companies, financial advisors and some financial institutions. The purchase process typically involves these key steps:
- Assessment: Evaluate your financial goals, risk tolerance and income needs.
- Research: Compare products from various providers, focusing on terms, rates, fees and the insurer’s financial stability.
- Consultation: Engage with a licensed financial advisor. “That ensures the annuity aligns with your retirement strategy,” Kibbel notes.
- Application: Complete the necessary paperwork and fund the annuity.
- Review: Carefully examine the contract details. “That especially includes surrender periods and fees before finalizing the purchase,” he adds.
Editor Norah Layne contributed to this article.
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