Judging by consumer behavior, it’s a good time to buy fixed and indexed annuities.

Analysts say volatility in the stock market and low interest rates contributed to more than $55 billion in annuity sales for the first quarter of this year.

Three different market research firms report similar data, showing a significant increase in sales from the same time last year, but a slight decrease from the previous quarter:

  • The Insured Retirement Institute reports total annuity sales were $57.8 billion in the first quarter of 2019. This accounts for a decrease of 3.6 percent from the previous quarter but an increase of 17.5 percent over the first quarter of 2018.
  • Wink’s Sales and Market Report puts the quarter’s total deferred annuity sales at $55.5 billion, with multi-year guaranteed annuities (MYGAs) leading. Deferred annuities include indexed and fixed annuities, as well as MYGAs.
  • Those statistics line up with data from LIMRA Secure Retirement Institute, which say that nationwide annuity sales reached $60.8 billion in the first quarter, up 17 percent from the first quarter of last year.

The positive sales numbers are holding true for most annuity types, with the exception of variable annuities.

What are the reasons more people are deciding to buy annuities? Consumers are buying annuities as part of a “flight to safety” prompted by “significant turbulence” in stocks, Annuity Research Director for LIMRA Secure Retirement Institute Todd Giesing said in a news release. As a rule, when stock markets are unpredictable, consumers search for lower-risk or guaranteed investments such as annuities.

In addition, low interest rates make annuities appealing because they pay higher yields than money market funds and certificates of deposit.

MYGAs Preferred Over Certificates of Deposit

MYGAs are fixed annuities that are similar to certificates of deposit, although they pay at higher rates.

With MYGAs, the interest rate is set ahead of time and doesn’t change for the term of the contract, which can be 2, 3, 4, 10 years and up.

Each year, you can withdraw a specific amount of money, and if you’re at least 72 years old (or 70½ years old if you reached this age before Jan. 1, 2020), you have to take a required minimum distribution (RMD), the IRS-dictated amount that you must withdraw from certain tax-preferred retirement savings accounts.

At the end of the period, you can take all the remaining funds as a lump sum or roll the money over into another annuity. This is different from traditional annuities, which pay a stream of income, as opposed to a lump sum.

According to Wink’s numbers reported in InsuranceNewsNet, first-quarter 2019 MYGA sales were $14.6 billion, which represents an increase of nearly 20 percent over the previous quarter and nearly 80 percent over the first quarter of 2018.

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Fixed Annuities Perform Better than Variable Annuities

“This is the strongest start for fixed annuities ever,” Giesing said. “The uptick in fixed annuity sales continued the momentum fixed annuities experienced in 2018, and was bolstered by recent volatile equity markets, which had investors seeking solutions with guarantees.

LIMRA’s First Quarter 2019 U.S. Retail Annuity Sales Survey reports that sales of single premium immediate annuities (SPIAs) had a record first quarter, reaching $2.8 billion, up 33 percent from 2018’s first quarter results. Deferred income annuity (DIA) sales increased 23 percent in the first quarter of 2019 to $633 million.

Overall, fixed annuities are significantly outperforming variable annuities, which are losing popularity with their complex terms and higher costs to the consumer.

Fixed annuity payouts are based on an interest rate that is set in the contract and doesn’t change, except as provided in the contract. Whereas variable annuity payouts are tied to the performance of an underlying investment portfolio.

The LIMRA report also shows that fixed annuities have done better than variable annuities in 11 of the last 13 quarters, with 2019 first-quarter fixed annuity sales rising 38 percent over the same quarter last year.

In contrast to the quarter-one fixed annuity sales of $38 billion, variable annuity sales declined 7 percent from the first quarter of last year, reaching only $22.8 billion.

Wink reported a similar finding, their data showing a $20.7 billion decline in sales of variable annuities — down nearly 10 percent from both the first and fourth quarters of 2018.

Giesing said variable annuity sales are likely to improve slightly, but still face “an uphill climb.”

Indexed Annuities Growing

Indexed annuities are linked to the performance of an index, such as the S&P 500.

Indexed annuities are not far behind fixed annuities in growth, rising 24 percent in the first quarter, with $18 billion in sales, LIMRA reports. This is the highest level of sales for indexed annuities that LIMRA has recorded.

“This was the strongest first quarter ever for indexed annuity sales,” Sheryl J. Moore, president and CEO of Wink, Inc., told InsuranceNewsNet. “It is unusual to see sales up this much year-over-year, but low fixed rates and market volatility have lent favorably to this product line.”

Wink’s data show indexed annuity sales for the first quarter at $17.7 billion, which represents a reduction of 7.7 percent from the previous quarter, and an increase of 24.5 percent over the first quarter of 2018.

Please seek the advice of a qualified professional before making financial decisions.
Last Modified: November 21, 2022
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