There’s no denying it—annuities are hot right now. Following record-high sales in 2022, LIMRA reported total annuity sales through the third quarter of 2023 jumped 21% to $269.6 billion. Sales aren’t expected to slow either. Even though interest rates are expected to level off, LIMRA forecasts 2023 annuity sales to exceed $350 billion, more than 10% higher than the record set in 2022.
Nationwide’s Advisor Authority study found that annuities are the top choice for advisors protecting clients’ assets against market risk, but only about half of investors with an advisor say the same. With so many investors unsure about incorporating annuities into their financial plans, what is holding them back?
Let’s be honest. Annuities can be perceived as complex or confusing if you’ve never worked with an advisor or financial professional to understand how they may fit into your financial plan. And frankly, there are a lot of mixed messages out there about the benefits and drawbacks of annuities, depending on who you listen to. That’s why it’s important for advisors to talk with their clients about how annuities can be a powerful addition to their portfolio. Below are some common investor misconceptions that may be turning your clients away from annuities—and ways you can address them.
Myth 1: Annuities are too costly. As traditional pension plans become rarer, retirement planning and the burden of planning for income in retirement is falling more on individuals. Most Americans simply don’t have the protection and predictability their parent’s defined benefit pension plan offered. However, annuities can help bridge that gap if your client recognizes the value in having them.
While it’s true that there can be a cost associated with annuities, any cost is meant to drive consumer value. Annuities function as an insurance product, offering guaranteed income and features that provide a level of protection during market volatility.
To help your clients consider the value they receive for the cost, ask them if they can afford to hope they don’t outlive their income in retirement, only to realize they are out of money when they can no longer go back to work. Can they afford to watch their 401k nest egg disappear due to an unexpected market decline when they are in or near retirement?
The bottom line? Today, many investors are finding any cost associated with annuities to be a fair trade-off for greater confidence in their retirement plan.
Myth 2: Fixed annuities are the only good annuity to purchase in today’s market. Fixed annuities have dominated the news lately, so chances are your clients may be familiar with them. In fact, LIMRA reported that every major fixed annuity product line experienced at least double-digit, year over year growth across the industry in the first three months of the year.
However, it’s worth noting that as interest rates have risen, annuity providers have been able to offer increasingly competitive features on variable annuities (VAs) and registered-index linked annuities (RILAs).
For example, VAs with living benefit riders have seen increased payout rates over the past year, allowing advisors to provide more guaranteed lifetime income to their clients when developing their retirement plans. VAs can also offer more investment portfolio flexibility depending on a client’s needs—especially for those who may want greater potential for growth with the added benefit of a guarantee. Meanwhile, RILAs will continue to attract investors who are seeking greater returns on their investment and are willing to accept some downside risk.