High fixed annuity sales in the third quarter of last year can partially be attributed to the right market conditions. According to Investment News’ Megan Durisin, “Fixed-annuity sales (were) driven by frustration with low interest rates, (and a) thirst for income.” Sales of $22 billion for the quarter were the highest that they’ve been since 2009. Sales were up 31% from the second quarter and 35% from the same time in 2012. These figures were taken from the Insured Retirement Institute’s quarterly report. The IRI’s president said that she expects fixed annuity sales to remain high far into the future. Demand is up because Baby Boomers are nearing and in retirement age. They are searching for income that will last through their retirement. While some workers have some form of income stream already, others are desperate for guaranteed lifetime income and fixed annuities are a good way to get it.
Longevity risk is very real for the aging population. Many are looking to annuities to mitigate that particular risk. Since the population is living longer, that risk is not going away anytime soon. The IRI’s president expects conditions to remain favorable for annuity sales for a long time. Overall annuity sales also saw an increase during the third quarter. Sales were at their highest number in two years. The $57.5 billion of annuity sales during the third quarter was up 5.5% from the second quarter and up 9% from the third quarter of 2012. Fixed annuity sales in particular are being driven by low interest rates and new product development. Fixed annuity rates of return are better than many other investments available right now. The Insured Retirement Institute is not surprised by increasing annuity sales and expects to see increasing sales each year in the future.
Not everyone supports annuity products though. Some fee-only advisors don’t often recommend commission-based annuity products. One advisor in the article said that annuities are preying on people’s fear of the stock market dive five years ago. But that is a realistic fear and a realistic product to help mitigate that fear. I don’t think good annuities are preying on fear at all. They are trying to show investors how to guarantee lifetime income in case there is another steep decline in the stock market. Another advisor cautions investors to be careful with annuity products because they can be complex. While this is true for some products, the advisor follows up by saying that annuities do have advantages, making them worth a look when planning for your retirement. Fixed annuity sales are likely to continue in the future, especially if they follow the IRI’s predictions.
Written by Rachel Summit