Interest grows in annuities as part of employer-sponsored retirement plans

Nearly 7 in 10 of participants in a recent survey would like more information about annuities as part of their employer-sponsored retirement plan.

A new study from Allianz Life Insurance Company of North America found that 68%  of participants would like more information about annuities as part of their plan, up from 62% in 2022 and 56% in 2021. At the same time, 67% of the respondents said that they would consider adding an annuity to their employer-sponsored retirement plan if it was available, up from 60% in 2022 and 59% in 2021.

“Americans are eager to have their plan sponsors add a guaranteed lifetime income option such as an annuity as part of their employer-sponsored retirement plan,” said Matt Gray, head of employer markets, Allianz Life. “In today’s economic environment, adding an annuity to a portfolio can help mitigate risks to a retirement strategy and improve outcomes.”

This shift is happening as Americans are increasingly relying on defined contribution retirement plans sponsored by their employer to fund their retirement. More than three in four (77%) said that having an option that allows them to build a protected foundation for lifetime income would increase loyalty to their employer, up from 74% in 2022 and 65% in 2021.

And most said that they expect most of their retirement income will come from money in their employer-sponsored retirement plans. At the same time, 66% expressed concern that they will run out of money from their plan during their retirement years.

The changes of the Setting Every Community Up for Retirement Enhancement Act of 2019—also known as the SECURE Act—opened the door for annuities to become a part of employer-sponsored retirement plans, such as a 401(k) plan. The act’s changes are designed to encourage more workers to save more money for retirement.

Annuity sales experience huge growth

Growing interest in annuities as part of an employer-sponsored plan is coming at a time when annuity sales in general are rapidly increasing. Total annuity sales increased 12% year-over-year to $88.6 billion in the second quarter 2023, driven by record-high registered index-linked annuity (RILA) and fixed indexed annuity (FIA) sales. This is according to preliminary results from LIMRA’s U.S. Individual Annuity Sales Survey.

“Double-digit equity market increases and stable interest rates have prompted investors to seek out greater investment growth opportunity through RILAs and FIAs,” said Todd Giesing, assistant vice president, LIMRA Annuity Research. “Economic conditions continue to be favorable for the annuity market. LIMRA is forecasting a strong second half of the year and expects 2023 sales to potentially surpass the record sales set in 2022.”

Tips for selling annuities

As the need for annuities increases, a growing number of advisors are looking for ways to enhance their strategies for selling them. To provide the best possible annuity recommendations for your clients, it is essential to first understand their individual needs and objectives, said Young Pham, financial advisor and investment analyst with BizReport. This includes their financial goals, risk tolerance, and overall financial situation.

“By taking the time to get to know your clients, you can tailor your recommendations to meet their specific needs and help them achieve their financial goals,” he said.

As advisors work with their prospects and clients, they should also highlight the potential for income, Pham said. For clients looking for a steady stream of income in retirement, explain how annuities can provide a reliable source of payments. Show them how annuities can supplement other sources of retirement income, such as Social Security and pensions, he said.

In addition, advisors should talk about the tax benefits of annuities, such as tax-deferred growth and the potential for tax-free income if purchased with after-tax funds. However, advisors should also be upfront about potential tax implications and penalties.

Another way to sell annuities is to provide case studies and real-world examples to clients and prospects, Pham said. “Share success stories and case studies of clients who have benefited from annuities to help potential customers visualize how annuities can work in real-world situations,” he added.

Allianz Life conducted its online survey, the 2023 Q2 Quarterly Market Perceptions Study, in May 2023 with a nationally representative sample of 637 respondents ages 18+ with an employer-sponsored retirement plan.

 

Ayo Mseka has more than 30 years of experience reporting on the financial services industry. She formerly served as editor-in-chief of NAIFA’s Advisor Today magazine. Contact her at [email protected]. 

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