Believe It: Annuity Sales Set Records in 2023

The S&P 500 surged 26.2%, including reinvested dividends, last year while the Bloomberg US Aggregate Bond Index gained a tidy 5.7%. Even with those gains by the two marquee asset classes, annuities were popular. Really, really popular.

Some of the enthusiasm for annuities is likely attributable to tens of thousands of baby boomers retiring on a daily basis. Over the course of their working lives, including in recent years, they’ve endured some calamitous market settings, including 2020 and 2022. So it stands to reason that many of these clients apt for the “lock it in” nature of annuities with retirement beckoning.

Additionally, elevated interest rates increased the allure of annuities last year, driving sales of the products to record levels for the second consecutive years.

Like any other product that’s purchased by consumers, clients are apt to have some pre-conceived notions about annuities, some of which are superficial in nature. Fortunately, superficial notions are often easy to dispel, including those regarding price. Put simply, many clients assume that annuities are too expensive when in reality, that’s not the case. That’s all relevant to advisors at a time of rising demand for annuities.

Inside Annuities’ Record Year

Last year, $385 billion worth of annuities were sold in the U.S., besting the record set in 2022 by 23%, according to LIMRA. Putting $385 billion into context, that’s slightly larger than the market capitalization of Johnson & Johnson (NYSE: JNJ).

“Economic conditions and growing demand for protected investment growth propelled fixed annuity sales to a remarkable $286.2 billion, a 36% jump from the record sales set in 2022,” said Bryan Hodgens, head of LIMRA research. “To put this into perspective, prior to 2022, total annuity sales never reached this level. Despite equity markets climbing more than 20% in 2023, investors worried about a downturn. This sentiment, combined with strong interest rates, prompted investors to lock in crediting and payout rates offered in fixed annuity products.

Interestingly, annuity sales surged late in 2023, reaching $115.3 billion in the fourth quarter. That’s a 29% year-over-year jump and it beat the previous quarterly record set in the first quarter of 2023.

In 2023, the October through December period represented the best quarter ever for sales of fixed-rate deferred annuities at $58.5 billion, noted LIMRA. Conversely, traditional variable annuity (VA) sales were sluggish. In fact, the fourth quarter and the entirety of 2023 were the slowest periods on record for sales of VAs.

Income Matters

Smart advisors know that excellent client service includes selling clients a product that they need, want or both. When it comes to annuities, remember the word “income.”

“Similarly, income annuity product sales had a spectacular year due to rising interest rates. Single premium immediate annuity (SPIA) sales were $3.5 billion in the fourth quarter, 9% higher than the prior year’s results. In 2023, SPIA sales jumped 43% to $13.2 billion, setting a new annual sales record,” concludes LIMRA. “Deferred income annuity (DIA) sales were $1.3 billion in the fourth quarter, increasing 81% from sales in the fourth quarter 2022. For the year, DIA sales nearly doubled (up 96%) to $4.1 billion.”

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