Measuring Longevity

A New Renaissance In Financial Guidance

Why annuities will continue to thrive in 2023 (and how advisors will lead the charge)

by Corey Walther

Mr. Walther is the president of Allianz Life Financial Services, LLC, a Minneapolis-based broker-dealer arm of Allianz Life. They are affiliated companies.

While risks to retirement like market volatility and inflation were top of mind in 2022, annuity sales set records. The value proposition for including an annuity within a portfolio was compelling. Consumers who were anxious about risks to their retirement could use an annuity as a way to create a dependable income stream.

That need to mitigate risks to a retirement strategy isn’t going away. Several major forces continue to create a positive environment for the annuity industry. More sales are likely to follow.

With ongoing industry and market trends, overall industry sales are likely to approach or even exceed last year’s record-setting results. Here are five big trends that are driving the interest in annuities.

Challenging Market Environment

The prevailing market dynamics are creating new challenges for investors who are trying to navigate ongoing volatility in the equity and fixed income markets, concerns about inflation and a potential recession – just to name a few.

These threats pose significant risk to long-term financial health. Investors are worried about volatility, inflation, and a potential recession. The latest Quarterly Market Perceptions Study* from Allianz Life found that the majority of Americans are worried about these risks.

  • 77% think the market will continue to be very volatile in 2023
  • 82% worry rising inflation will continue to have a negative impact on the purchasing power of their income in the next six months
  • 62% worry a major recession is right around the corner

Annuities are one way that investors can include some protection to these risks into their portfolio.

Strong Demand For Protection

Consumers are interested in mitigating the potential risks to their finances. (62%) said it is important that they have some of their retirement savings in a financial product that protects it from market loss.

The majority of Americans in the study said products with stability would ease their worries about market factors. For example, 76% said a guaranteed lifetime income option as part of their retirement plan would ease concerns about inflation.

This would help Americans who are too nervous to invest right now. Nearly two in three Americans (64%) said they would rather have their money sit in cash than endure market swings.

To quell concerns about uncontrollable outside factors, consumers want products that add some protection in their portfolio.

Changing Demographics

As the baby boomer generation ages and enters retirement, the demographics of the market are changing. The average baby boomer is in their mid-60s with people in the generation ranging in age from 58 to 76. Each day in the United States, around 10,000 people from this massive generation turn 65, according to the U.S. Census Bureau. This means there is a larger population likely to purchase an annuity than ever before.

While this segment of the population was able to weather the financial crisis in 2008 and 2009, they are much older now. If another crisis should occur, many people in this large generation may not be working anymore and may not have time on their side to rebuild their investment portfolio. They are likely interested in finding ways to insulate their finances from these outside risks.

While this segment of the population was able to weather the financial crisis in 2008 and 2009, they are much older now. If another crisis should occur, many people in this large generation may not be working anymore and may not have time on their side to rebuild their investment portfolio...

What’s more – retirement for baby boomers looks different than the generations before them. In particular, they are living longer, healthier lives. And longevity poses additional risks to retirement strategies. This makes creating sustainable income streams for retirement, like those offered by an annuity, more important than ever.

Product Innovation

Annuities aren’t the same as they were a decade ago. There has been an incredible amount of innovation in the industry. For example, when Allianz Life started to offer its Registered Indexed Linked Annuity (RILA) back in 2013, it was one of the first companies in the industry to do so.

Carriers are introducing commission-free products so that more financial professionals have access to annuities.

The industry continues to innovate in this space and expand fixed index annuities (FIAs) and RILAs to help address accumulation and income needs. Carriers have heard consumer and investors desire for customizable products. Today’s annuity products can be customized to a client’s level of protected, guaranteed income needs. These innovations make annuities even more attractive to today’s consumers. Some annuities provide income benefit riders that are either built-into the annuity or optional and at an additional rider fee.

Renaissance In Financial Guidance

There is no “one size fits all” approach to finances and the need for financial guidance is massive. Recently, we have experienced a renaissance in financial advice with professionals leaning into holistic financial planning, goals based outcomes and financial fitness.

Financial professionals are able to give more tailored guidance because of technology tools and solutions. These allow financial professionals to build retirement plans for individuals based on their specific goals and risk tolerance. The idea is to help people make more informed decisions that can increase the probability of success for their strategy while mitigating risks.

While situations and investor goals can vary, many people are leveraging new strategies and innovative insurance solutions to help address risks, build and protect wealth, as well as create sustainable retirement income that they cannot outlive.

Annuity sales took off last year. But the factors influencing the rise in interest are ongoing. By using insurance solutions like annuities, savvy financial professionals and investors can build resiliency into their financial strategies.

 

 

 

*Allianz Life Insurance Company of North America (Allianz Life) conducted an online survey, the 2022 Q4 Quarterly Market Perceptions Study in December 2022 with a nationally representative sample of 1,005 Respondents age 18+.
This information is being provided only as a general source of information and is not intended to offer you specific financial guidance. Before you make any decisions regarding your financial situation, please consult a financial professional or tax professional to discuss your individual circumstances and objectives.
Allianz Life does not provide financial planning services.
Guarantees are backed by the financial strength and claims-paying ability of Allianz Life. Variable annuity guarantees do not apply to the performance of the variable subaccounts, which will fluctuate with market conditions.
Products are issued by Allianz Life Insurance Company of North America. Variable products are distributed by its affiliate, Allianz Life Financial Services, LLC, member FINRA, 5701 Golden Hills Drive, Minneapolis, MN 55416-1297. 800.542.5427 www.allianzlife.com This notice does not apply in the state of New York.