Record Income Annuity Sales May Reflect Larger Savings Trend

Declining rates usually hold sales down

Record sales of income annuities in 2014 may reflect a larger savings trend among retirees and pre-retirees.

When LIMRA Secure Retirement Institute released its 2014 annuity sales figures, income annuities — fixed immediate and deferred income — both achieved record sales despite a decrease in interest rates during the year.

Declining rates usually hold down sales of interest-sensitive products such as income annuities, so record-high sales defies typical market behavior.

LIMRA Secure Retirement Institute research suggests that the growing trend of retirees and pre-retirees seeking guaranteed income could be a contributing factor. As of 2011, 42.5 million Americans were retired and pre-retirees (age 55 and older) numbered 33 million.

A relatively short timeline

By 2025, 64 million Americans will be retired, with Gen X and Gen Y following close behind assuring that retirement and the pursuit of an income in retirement is a long-term trend. LIMRA Secure Retirement Institute research consistently shows Americans' top financial goal is to have enough money to last through their retirement.

As of 2011, 42.5 million Americans were retired and pre-retirees (age 55 and older) numbered 33 million

In the past, Americans counted on the "three legged stool" for retirement income: Social Security benefits, pension proceeds and personal savings. Right now, only 30 percent of pre-retirees have access to a traditional defined benefit (DB) pension plan. For younger workers, access to pensions is disappearing. Personal savings are now expected to play a larger role in providing retirement income.

Our research shows that 65 percent of pre-retirees with a direct contribution (DC) plan have less than $150,000 saved. At the same time, three quarters of pre-retirees say a guaranteed income is most important to them. This might help explain why income annuities continue to thrive in a low interest rate environment. Though familiarity with annuities remains low (46 percent among pre-retirees) more than half of Boomers age 50-59 are interested in converting their assets into a guaranteed lifetime income stream. As these trends continue, sales of income annuities could defy traditional market conventions for a long time to come.