'Silver Wave' Isn't Only Factor Boosting Annuities

What You Need to Know

Demand will naturally rise as more people enter retirement.
Investors have a natural desire to avoid the pain of market volatility.
A diversifying product set includes growing popularity for registered index-linked annuities.

The record “silver wave” of people turning 65 this year has created a significant tailwind for annuities, according to Principal’s Sri Reddy, but that’s not the only factor driving annuity sales figures higher.

Individual investors have shown record interest in annuities since the start of 2022, according to Reddy, who serves as a senior vice president for retirement and income solutions at Principal. The outlook for annuity sales remains vibrant thanks to increasingly widespread interest in guaranteed retirement income.

Projections from LIMRA anticipate an increase in annual annuity sales to as much as $378 billion by 2026, Reddy pointed out, and sales of registered index-linked annuities are showing particular strength. Those sales, LIMRA’s research shows, are estimated to grow from a record $47.4 billion in 2023 to more than $60 billion in 2026.

“That matches with what we are seeing internally here at Principal, especially when it comes to RILAs with an income rider component,” Reddy said. “RILAs with income have been one of our fastest-growing new products in the market since we decided to build them out about a year and a half ago.”

Annuities’ Time to Shine?

As to why RILAs paying immediate income are proving so popular, Reddy pointed to demographic trends and more investors understanding that they need both income protection and exposure to market growth.

Knowledgeable researchers and retirement advisors are successfully making the case that annuities can effectively give risk-averse clients a “license to spend.” After a lifetime of diligent saving, Reddy explained, people get used to seeing their asset pool grow. The transition to decumulation — however well planned and controlled — is a big mental hurdle to clear.

Annuities can act as a kind of circuit breaker, Reddy said, helping clients to avoid running short of funds at a vulnerable time in life. What’s more, the license to spend also helps people take advantage of their assets and avoid significant underconsumption during life after work.

Another factor in annuities’ growing popularity, Reddy offered, is that the current economic environment makes guaranteed lifetime withdrawal benefits look relatively less attractive from a price-to-value perspective, letting RILAs shine.

“Some people are looking at the GLWB’s price point and they’re thinking that they can probably get similar performance in a managed account,” Reddy said.

Advisors and clients who are near or navigating retirement, Reddy said, need to understand the evolving toolset they now have access to. Securing enough guaranteed income through sources like Social Security and individually owned indexed annuities is a recipe for a financially stress-free retirement.

On Market Volatility

Another factor driving interest in annuities, according to Reddy, is the desire to avoid the pain of market volatility and to reduce exposure to sequence of returns risk.

“People have had to navigate the COVID shock and subsequent rebound, and after that you had the war in Ukraine causing market disruption,” Reddy said. “Since then, we have seen a major rally driven almost entirely by infatuation with AI and the Magnificent 7. Now, we’re facing another big bout of volatility as FOMO meets reality.”