How investors look to mitigate growth, protection and the daunting trek into old age
by Eric J. ThomesMr. Thomes is Chief Distribution Officer for Allianz Life Insurance Company of North America. Visit www.allianzlife.com.
As the country as a whole grows older, it makes sense that the demand for retirement services has grown.
A century ago, just one in 20 people in the U.S. were 65 or older. Now, about one in six people in the U.S. are age 65 or older, according to the 2020 U.S. Census. That’s a growth rate of about 1,000%. Meanwhile the total population grew about 200%.
But, the growth in retirement services is about more than just an aging population that wants to achieve a successful retirement.
Americans today are seeking to protect their retirement and mitigate many risks like market volatility and taxes. There is noise all around us and we don’t know what will come next in an uncertain market. Clients want a financial strategy that helps manage risk and volatility to provide a smooth journey through retirement. This is causing many segments of retirement services to grow.
The areas that are growing are in products that deliver security and protection – and that trend may continue. We believe fixed index annuities, registered index linked annuities, and fixed index universal life insurance will continue to resonate with consumers in 2024.
Easing Financial Worries
These products help address some of Americans biggest retirement fears like outliving their money.
In fact, 61% of Americans say they are more afraid of running out of money than they are of death, according to the Allianz 2023 Annual Retirement Study. And, ongoing economic uncertainty is affecting how Americans feel about their long-term financial strategies. For example, 56% of Americans said they consider “financial crises” as a permanent part of their retirement planning in the Annual Retirement Study.
Even with this ongoing worry, many Americans aren’t taking action in their best interest. Most Americans (54%) said they are keeping more money than they should in cash because they’re worried about a recession, as noted in our 2023 Q3 Quarterly Market Perceptions Study**. In order to seek long-term financial, and mitigate risks like inflation, Americans must be informed about their financial options. So, finding ways for them to take part in the market while mitigating downside can be important.
Smart financial strategies can help incorporate risk management strategies to potentially lower volatility to invest more confidently and weather market downturns over the long term. The growth potential and levels of principle protection in FIAs, RILAs and FIUL policies can strengthen the outcomes of a holistic financial strategy and help manage risk. That means that consumers who are seeking guarantees and opportunities for growth may turn to these products.
Growth In The Market
Continuing shifts in the market – like rising interest rates – have varying effects on these product categories. For example, rising interest rates are driving some of the strongest guaranteed benefits in years in the FIA marketplace.
And in the RILA market, some of the growth can be attributed to innovation in the products. Americans may be turning to RILAs as they look for a product that can provide both income and growth potential. Carriers, Allianz included, have found ways to innovate with unique crediting methods and lock features that have allowed the products to become more flexible and more widely meet the needs of financial professionals and their clients.
While its death benefit for beneficiaries is the primary reason for owning life insurance, FIUL can also help diversify client portfolios and help address factors that can diminish comfort in retirement. The level of protection within FIUL policies can provide some insulation from market volatility and offers the potential for tax-deferred accumulation.
So, how much have these product categories grown?
- FIA sales have more than doubled in the last decade from $34 billion in 2012 to nearly $79 billion in 2022, according to Wink.
- The RILA market has grown by 138% from $17.3 billion in 2019 to $41.1 billion in 2022. And the pace is growing too – a new quarterly sales record for RILA products was set in the second quarter of 2023.
- FIUL sales have more than doubled in the last decade from $1.6 billion in 2012 to $3.9 billion in 2022, according to LIMRA. At the same time, FIUL has gained share in the life insurance market. In 2012, 14% of annualized premium in the market was IUL. In 2022, it was 25%, according to LIMRA.
We don’t see market uncertainty and the consumer desire for protection going away. Product segments of the retirement services industry like FIAs, RILAs, and FIUL will only continue to grow as these products help to ease some of Americans biggest problems and worries about preparing for long-term financial stability. We believe products that address risk can, and will, play a pivotal role in helping the aging population protect their well-earned retirement.
*Allianz Life conducted the online survey in February and March 2023 with a nationally representative sample of 1,000 individuals age 25+ in the contiguous U.S. with an annual household income of $50k+ (single) / $75k+ (married/partnered) OR investable assets of $150k.
**Allianz Life conducted an online survey, the 2023 Q3 Quarterly Market Perceptions Study in August 2023 with a nationally representative sample of 1,005 Respondents age 18+.