Stocks according to Limra statistics, annuity sales will reach $310.6 billion in 2022, exceeding the previous yearly record established in 2008.
A combination of factors challenged consumers: Stocks
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Consumers poured a record amount of money into annuities, a sort of insurance that provides a guaranteed income stream, last year, despite stocks market volatility, recession worries, and higher payments. According to Limra, an insurance industry trade body, buyers would invest $310.6 billion in annuities by 2022.
This is a 17% rise above the previous record established in 2008 when customers acquired $265 billion in annuities. That year, the United States was in the grip of the Great Recession, 500 Index eventually bottomed out with a 57% drop from its peak.
Similarly, the S& 500 lost 19.4% in 2022, its lowest year since 2008. The Federal Reserve of the United States boosted interest rates aggressively to combat persistently rising inflation, raising fears that the central bank may unwittingly tip the country into recession.
“In bad times, individuals are anxious about their safety,” said Lee Baker, a certified financial planner and the founder of Apex Financial Services in Atlanta, as well as a member of CNBC’s Advisor Council. An ‘unusual’ combination of events fueled annuity stocks. Annuities come in a variety of forms.
They are often classified into two types:
Retirement stocks or quasi-pension plan provides a fixed amount of income for life. All annuities are offered by insurance firms to protect against risks such as market volatility or the possibility of outliving assets in retirement.
Annuities have also profited from the Fed’s rate-hiking cycle, resulting in a higher return on investment. Meanwhile, US bonds experienced their worst year on record in 2022, leaving few alternatives for depositors seeking relative safety and a fair yield.
“This was a remarkable year,” Todd Giesing, assistant vice president of Limra Annuity Research, said of the variables that contributed to record annuity sales. Anything that is protection-based and has some downside protection is doing extremely well.
Last year, consumers were especially upbeat about fixed-rate deferred annuities. According to Limra data, total sales in that category — $112.1 billion — more than quadrupled those in 2021 and beat the previous year’s high of $80.8 billion in 2002.
Fixed-rate deferred annuities function similarly to a bank’s certificate of deposit. Insurers guarantee a rate of return over a specific period, such as three or five years. Buyers can receive their money back at the end of the term, roll it into another annuity, or turn it into an income stream.
Indexed annuities took in $79.4 billion, an 8% rise over the previous year, according to Limra. Indexed annuities protect against downside risk. They are linked to a market index, such as the S& 500, and insurers restrict earnings to the upside when the market performs well while putting a floor on losses when it does not.
“Anything that’s protection-based and has some downside protection is performing well,” Giesing told CNBC last autumn.
Meanwhile, buyers have shied away from variable annuities, the success of which is often linked directly to the stock market. Limra reported that annual sales of annuities were $61.7 billion, the lowest since 1995.
While the convergence of circumstances in 2022 — such as large stock and bond losses and quickly rising interest rates — is unlikely to sustain in the short future, demographic trends like baby boomer retirements support long-term growth potential for annuity sales, according to Giesing.
He claims that the typical customer is roughly 63 years old. How to Determine Whether an Annuity is Right for You According to financial gurus, annuities may not be suitable for everyone. When developing financial plans, advisors frequently propose a single-premium instant annuity or a deferred-income annuity.
These are for retirees who want a guaranteed, pension-like income every month for the rest of their lives. Payouts from immediate annuities begin immediately, but those from deferred-income annuities begin later, maybe in a retiree’s 70s or 80s.
These payments, in conjunction with other guaranteed sources of income such as Social Security, serve to ensure that a retiree has enough money to meet essentials such as a mortgage, electricity, and food if they live longer than planned and their investments are depleted or declining.
“Am I concerned that the client may run out of money?
If the answer is yes, that’s when I consider an annuity,” Carolyn McClanahan, a CFP and founder of Life Planning Partners in Jacksonville, Florida, told CNBC. McClanahan, a member of CNBC’s Advisor Council, does not recommend single-premium instant annuities or deferred-income annuities to customers who have enough money to live well in retirement.
Advisors say that single-premium instant annuities and deferred-income annuities are easier to grasp than other types. The buyer pays a lump amount to the insurer, who then guarantees a set monthly payment to the buyer beginning now (an instant annuity) or later (a deferred-income annuity). According to consultants and insurance experts, they also provide retirees with the most bang for their money when compared to other forms of annuities.
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