Consumer interest in annuities has never been higher, having bought $310.6 billion worth in 2022, eclipsing the old record of $265 billion set during the financial crisis of 2008.¹

A variety of factors are contributing to the surge in demand, from economic uncertainty and fears of recession to a shift in how many consumers are financing their retirements. But before we get too in-depth, what is an annuity, and why do people want them?

What is an annuity?

An annuity is a contract between you and an insurance company that states the insurance company will pay you a stream of annuity payments (income) in return for your premium (money you used to buy the annuity). When the income stream starts depends on the type of annuity and time period you select.

Annuities aren’t new

The concept of an annuity dates back to ancient Rome — and so does the name. Roman citizens would purchase an annua which provided a guaranteed income payment once a year for life. One of the simplest annuity models is our modern-day Social Security system. You contribute money via employment taxes during your working years and, in turn, receive inflation-adjusted monthly payments for life after you retire.

Safe harbor in uncertain times

A chief reason for surging annuity sales is the roller-coaster US economy of the past few years. It’s no surprise that the last annuity sales record was set in response to the global financial crash of 2007-2008 which put the US economy into economic free-fall and led to the loss of $19.2 trillion in household wealth.²

Today, rising inflation, fears about Social Security funding, and stock market fluctuations have sent consumers in search of safer harbor for their money. An annuity is a contract with guarantees that enable the buyer to create a steady stream of income and potentially avoid the danger of outliving savings in old age.

And since 89% of US workers prioritize having some guaranteed income in retirement in addition to social security, it’s no surprise more of them are turning to annuities.³

Interest rates are climbing

With the Federal Reserve raising its benchmark interest rate to counter rising inflation, annuity sales are also on the upswing. Insurers are now offering buyers higher interest rates — and thus higher projected payouts — making the products offered today more attractive to consumers.

Consumers interested in deferred income annuities to bolster retirement cash flow stand to gain the most. For example, a woman who bought a deferred annuity on May 1, 2022 would get about $900 more per month when she turned 85 than if she had bought the annuity on Jan 1, when interest rates were lower.⁴

Deferred annuity payouts have increased 42% since Jan. 1, 2022.⁵

New tools for retirement planning

Traditional defined-benefit pension plans used to be commonplace. At retirement, an employee received a lifetime annuity from their employer, typically based on years of service and final salary. But pensions virtually disappeared in the 1980s, replaced by 401(k) plans funded by employee contributions. Money in a 401(k) plan can grow tax-free or tax-deferred depending on the plan, but contributions are limited by IRS rules.

Annuities can be a good complement to a 401(k) plan for your retirement strategy because they offer more income distribution choices and are not subject to IRS contribution limits. You can often put as much money as you like into an annuity (subject to the insurer’s rules) and be assured of a guaranteed income stream during your retirement years. A major consideration with certain annuities is the lack of liquidity or on-going access to your premium. You may surrender an annuity at anytime, but, depending on the contract, a surrender charge may be applied. Some annuities may also require an annual fee or fees for optional contract features.

The case for confidence

Perhaps the greatest value of an annuity lies in the financial confidence it gives the policyholder, especially in uncertain economic times. That sense of confidence is borne out by research. In a whitepaper entitled “It’s More Than Money,” the authors noted that “certainty provides confidence. This is one of the reasons that retirees who’ve incorporated income annuities into their retirement planning report higher levels of satisfaction.”  Annuity holders worry less and may even live longer, according to a University of Chicago study.⁶

Annuities can be a key retirement planning tool but choosing the right type of policy and customizing it to your needs is a complex undertaking. Consult with a financial professional to explore your annuity options and be sure to partner with an insurance company that is financially secure.

Variable annuities are long-term investment vehicles that involve certain risks, including possible loss of the principal amount invested. The investment return and principal value may fluctuate so that the investment, when redeemed, may be worth more or less than the original cost. Withdrawals of taxable amounts will be subject to ordinary income tax and possible mandatory federal income tax withholding. If taken prior to age 59½, a 10% IRS penalty may also apply. Withdrawals affect the variable annuity’s death benefit, cash surrender value and any living benefit and may also be subject to a contingent deferred sales charge.

Variable annuities and their underlying variable investment options are sold by prospectus only. Prospectuses contain important information, including fees and expenses. Please read the prospectus carefully before investing or sending money. You should consider the investment objectives, risks, fees and charges of the investment company carefully before investing. Please contact your investment professional or call 800.221.3253 for a prospectus, which contains this and other important information. To download a contract or fund prospectus, please click here.

Annuity guarantees are backed exclusively by the strength and claims-paying ability of The Guardian Insurance & Annuity Company, Inc. (GIAC) and are issued by The Guardian Insurance & Annuity Company, Inc. (GIAC), a Delaware corporation. Individual variable annuities are distributed by Park Avenue Securities LLC (PAS). GIAC is a wholly owned subsidiary of The Guardian Life Insurance Company of America (Guardian). PAS is a wholly owned subsidiary of GIAC. Guardian, GIAC, and PAS are located at 10 Hudson Yards NY, NY 10001.  Contract provisions and investment options vary by state. PAS is a member FINRA, SIPC

All investments contain risk and may lose value. Diversification does not guarantee profit or protect against market loss.

2023-155267 Exp. 05/25