Why annuities are in demand
Consumer interest in annuities has never been higher, with sales reaching a record high of $385 billion in 2023, eclipsing the old record of $313 billion set in 2022.1
A variety of factors are contributing to the surge in demand, from strong economic conditions to a shift in how consumers are financing their retirements. But before we get too in-depth, what are annuities, and why do people want them?
What is an annuity?
An annuity is a contract between you and an insurance company that states the insurance company will pay you a stream of annuity payments (income) in return for your premium (money you used to buy the annuity). When you begin to receive the income stream depends on the type of annuity and the time period you select.
One of the simplest annuity models is our modern-day Social Security system. You contribute money via employment taxes during your working years and, in turn, receive inflation-adjusted monthly payments for life after you retire.2
Retirement products for uncertain times
A chief reason for surging annuity sales is the roller-coaster US economy of the past few years. It’s no surprise that the last annuity sales record was set in response to the global financial crash of 2007-2008, which put the US economy into economic free-fall and led to the loss of $17 trillion in household wealth.3,4
Today, economic uncertainty, fears about Social Security funding, and stock market fluctuations have sent consumers in search of more conservative options for their money. An annuity is a contract with an insurance company that turns your contributions into a steady stream of retirement income. Based on your contract, you're also able to determine the length of time during which you'll receive payments (e.g., for your lifetime or a specific number of years).5
Our research shows that US workers are concerned with having some form of guaranteed income in retirement in addition to Social Security, so it’s no surprise more of them are turning to annuities.6 Moreover, 51% of Americans’ top financial concern in retirement is having their savings last as long as they need to.7
Stability amidst a changing retirement landscape
Traditional defined benefit pension plans used to be commonplace. At retirement, an employee received a lifetime annuity from their employer, typically based on years of service and final salary. But pensions virtually disappeared in the 1980s, replaced by 401(k) plans funded by employee contributions. Money in a 401(k) plan can grow tax-free or tax-deferred depending on the plan, but contributions are limited by IRS rules.8,9
Annuities can be a good complement to a 401(k) plan for your retirement strategy because they offer more income distribution choices and are not subject to IRS contribution limits. You may be able to put as much money as you like into an annuity (subject to the insurer’s rules) and be assured of a guaranteed income stream during your retirement years.
A major consideration with certain annuities is the lack of liquidity or on-going access to your premium. You may surrender an annuity at any time, but, depending on the contract, a surrender charge may be applied. Some annuities may also require an annual fee or fees for optional contract features.
With the shift from traditional pension plans to 401(k)s, annuities may offer a way to recreate that dependable, pension-like income stream. This feature can help reassure consumers seeking financial stability amidst a changing retirement landscape.
The case for confidence
Perhaps the benefits of annuities lie in the financial confidence they can provide the policyholder, especially in uncertain economic times: Annuity holders worry less and may even live longer, according to a University of Chicago study.10
Annuities can be a key retirement planning tool, but choosing the right type of policy and customizing it to your needs is a complex undertaking. Consult with a financial professional to explore your annuity options and be sure to work with an insurance company that is financially stable.
SOURCES:
1 https://www.limra.com/en/newsroom/news-releases/2024/limra-u.s.-annuity-sales-post-another-record-year-in-2023/
2 https://www.investopedia.com/terms/s/socialsecurity.asp
3 https://www.limra.com/en/newsroom/news-releases/2023/limra-record-annuity-sales-in-2022-expected-to-continue-into-first-quarter-2023/
4 https://www.investopedia.com/news/10-years-later-lessons-financial-crisis/#citation-29
5 https://www.guardianlife.com/retirement
6 https://www.guardianlife.com/s3fs-public/2022-03/The_Study_of_Financial_and_Emotional_Confidence_0.pdf?F5zrhVfn5k_tqEIiqx99Fami5ymLxOzE=
7 https://www.guardianlife.com/reports/mind-body-wallet
8 https://www.irs.gov/retirement-plans/plan-sponsor/401k-plan-overview
9 https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-401k-and-profit-sharing-plan-contribution-limits
10 https://security.naifa.org/blog/focus-on-retirement-happiness-to-make-the-annuity-case#:~:text=The%20American%20College%20recently%20wrote,a%20state%20of%20perpetual%20worry.
DISCLAIMER:
Registered index-linked annuities (RILA) and variable annuities (VA) are long-term investment vehicles that involve certain risks, including possible loss of the principal amount invested. The investment return and principal value may fluctuate so that the investment, when redeemed, may be worth more or less than the original cost. Withdrawals of taxable amounts will be subject to ordinary income tax and possible mandatory federal income tax withholding. If taken prior to age 59½, a 10% IRS penalty may also apply. Withdrawals affect the variable annuity’s death benefit, cash surrender value and any living benefit and may also be subject to a contingent deferred sales charge.
RILAs, VAs, and VAs underlying variable investment options are sold by prospectus only. Prospectuses contain important information, including fees and expenses. Please read the prospectus carefully before investing or sending money. You should consider the investment objectives, risks, fees and charges of the investment company carefully before investing. Please contact your investment professional or call 800.221.3253 for a prospectus, which contains this and other important information. To download a contract or fund prospectus, please click here.
Annuity guarantees are backed exclusively by the strength and claims-paying ability of The Guardian Insurance & Annuity Company, Inc. (GIAC) and are issued by The Guardian Insurance & Annuity Company, Inc. (GIAC), a Delaware corporation. Individual variable annuities are distributed by Park Avenue Securities LLC (PAS). GIAC is a wholly owned subsidiary of The Guardian Life Insurance Company of America (Guardian). PAS is a wholly owned subsidiary of GIAC. Guardian, GIAC, and PAS are located at 10 Hudson Yards NY, NY 10001. Contract provisions and investment options vary by state. PAS is a member FINRA, SIPC
All investments contain risk and may lose value. Diversification does not guarantee profit or protect against market loss.
This material is intended for general public use. By providing this content, The Guardian Life Insurance Company of America, and their affiliates and subsidiaries are not undertaking to provide advice or recommendations for any specific individual or situation, or to otherwise act in a fiduciary capacity. Please contact a financial professional for guidance and information that is specific to your individual situation. Material discussed is meant for general informational purposes only and is not to be construed as tax, legal, medical, or financial advice. Guardian, its subsidiaries, agents and employees do not provide tax, legal, medical or finance advice. Consult your tax, legal, medical or finance professional regarding your individual situation
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