Displaying items by tag: annuities

Planning for a financially secure retirement requires careful savings and multiple income streams to sustain one’s lifestyle after leaving the workforce. While IRAs, 401(k)s, and pensions are common sources of retirement income, annuities are another option to consider, that can suit investor looking to maximize income. 

Annuities come in two main forms: immediate annuities, which provide guaranteed lifetime income starting right away, and deferred annuities, which allow funds to grow tax-deferred until withdrawals begin. Robbins argues that immediate annuities offer unique benefits due to mortality credits, helping those who live longer receive higher payouts. 

Though some financial experts debate their effectiveness, annuities can provide a stable income stream, particularly when paired with Social Security and other investments. 

FINSUM: For retirees seeking predictability in their finances, annuities may serve as a valuable tool for long-term financial security.

DC plan sponsors must balance the need for steady lifetime income with participants’ desire to retain asset control. According to recent survey data, many individuals want guaranteed income but are reluctant to lock away their savings, making flexible solutions essential. 

A guaranteed lifetime withdrawal benefit (GLWB) offers income security while allowing participants to maintain access to their funds, unlike traditional annuities that require upfront asset surrender. 

While single premium immediate annuities (SPIAs) and qualified longevity annuity contracts (QLACs) provide reliable payouts, they often limit liquidity and growth potential. Self-insuring through investment withdrawals may work for those with substantial outside income but poses risks for the average retiree. 

Finsum: Offering adaptable income solutions like the GLWB allows plan sponsors to support a wider range of participants without sacrificing financial stability.

Structured annuity sales soared to a record $62.9 billion in 2024, marking a 39.6% increase from the previous year as investors sought downside protection with upside potential. The fourth quarter alone saw $17.2 billion in structured annuity sales, continuing the product’s rapid ascent. 

Indexed annuities also experienced strong growth, hitting $130 billion for the year despite a quarter-over-quarter dip. Meanwhile, variable annuities rebounded sharply, posting a 25.4% annual increase to $61.3 billion, driven by stock market gains and growing advisor demand. 

Income annuities, a staple for retirees and income-focused investors, reached $14.9 billion in total sales, with New York Life maintaining its dominant market share. While some fixed annuity segments faced headwinds, the broader annuity market remained robust, reflecting investors’ shifting priorities in an evolving economic landscape.

Finsum: With a large boomers currently in the midst of retirement, we could see more demand for annuities from the largest generation. 

Insurance companies are increasingly turning to asset-backed bonds to support annuity payouts amid surging demand for retirement income products. Securitized assets now make up a quarter of insurers’ bond holdings, with exposure growing by $365 billion since 2017, according to Morgan Stanley. 

Higher interest rates have fueled record annuity sales, reaching $432.4 billion in 2024, marking a 12% annual increase. This trend has intensified insurers’ appetite for asset-backed securities (ABS) and collateralized loan obligations (CLOs), which saw combined holdings rise to $312 billion last year. 

Esoteric ABS, including whole business and digital infrastructure securitizations, have become key components of insurers’ portfolios due to their yield and duration advantages. As demographic shifts drive continued demand for annuities, Morgan Stanley projects structured credit exposure to grow at a 6% annualized rate through 2027.

Finsum: It’s important to understand the underlying structure of annuities, because it tells a compelling story for their high demand. 

Total annuity sales reached a record $432.4 billion in 2024, marking a 12% increase from the previous year and the third consecutive year of growth. Despite strong overall performance, declining interest rates in late 2024 led to a 13% drop in fixed-rate deferred and income annuities, as investors shifted toward products with higher growth potential. 

Traditional variable annuities saw their first annual increase in three years, rising 19% to $61.2 billion, fueled by strong equity markets and product innovation. Experts anticipate continued strength in annuity sales for 2025, and variable annuities could have another positive year’s annuities. 

LIMRA attributes this sustained demand to growing consumer interest in investment protection and guaranteed retirement income. Final industry rankings for 2024 will be released in March after earnings reports are completed.

Finsum: This could be the play for income investors worried about rising rates but need some upside exposure in 2025.