2024 was a watershed year for annuities – and that’s likely to continue.
When people talk about retirement, annuities are an important part of the conversation. That’s because annuities offer something other financial products do not – guaranteed income for life.
In a recent survey, people who own annuities said they have more peace of mind and less financial stress. They worry less about:1
- Day-to-day expenses,
- Running out of money, and
- Market downturns.
Annuity owners also feel confident they are more protected from less vulnerable to financial fraud and less likely to make poor financial decisions as they age.1
Given these benefits, it’s little wonder annuity sales increased almost 30% year over year through September 2024.2 And sales are predicted to remain strong as more people are turning 65 than ever before–11,200 every day from now through 2027.3
Annuities help secure your retirement.
Annuities are the only products built to provide income payments guaranteed to continue as long as you live. Why is this important for retirees? Because when you purchase an annuity, you shift the risk of running out of money to the insurance company. Owning an annuity with an income benefit takes pressure off you and your investment portfolio to generate enough income year after year for the length of your retirement. Like Social Security and a pension, annuities payments are secure and predictable, adding a measure of certainty to your financial plan. Annuities often are referred to as ‘personal pensions’.
Learn more about the basics of annuities and how they work.
Leading experts in retirement planning, including Nobel Prize-winning economist William Sharpe, Professor of Retirement Income Wade Pfau, Ph.D., CFA, RICP(R), Professor of Wealth Management Michael Finke, PhD, CFP®, and Head of Retirement Research David Blanchett, PhD, CFA, CFP®, agree that income from annuities should be considered in retirement planning to help limit key risks, including:
- Investment uncertainty. No one can predict how the market will perform, so it’s difficult to know how your retirement savings will grow or how much income your savings will produce. Annuities can offer principal protection and guaranteed income, providing a measure of safety and predictability in a retirement plan.
- Longevity uncertainty. No one knows how long they will live. That makes it difficult to know how long you will need income during your retirement. Annuities guarantee income payments for life, no matter how long you live. For this reason, annuities sometimes are referred to as “personal pensions.”
Learn more about how annuities protect against risks in retirement.
Understanding modern annuities
While annuities traditionally have had high internal fees that include commissions for agents who sell them, newer “commission-free” annuities are an appealing alternative to their commissioned predecessors. Like no-load mutual funds, commission-free annuities have lower costs, more transparency, and improved benefits (for example, no surrender periods and higher payout rates). Today, commission-free annuities are available from leading insurance companies that offer a range of product types, features, and benefits.
One of the popular ways to take advantage of commission-free annuities is to exchange a commissioned annuity you own for a commission-free alternative. Through a 1035 exchange—a tax-free transfer of an existing policy to a new policy—you may be able to lower your product costs and improve or better align benefits with your needs. You’ll want to understand what you’re getting and what you’re giving up to ensure the new policy is better suited to your needs and goals.
Compare an existing policy to commission-free options with DPL’s Annuity Comparison Calculator.
Trustworthy financial advice is important
If you think an annuity might be right for you and your retirement goals, consider talking to a financial professional. When working with a financial professional—whether a broker, an insurance agent, or a financial advisor—make sure you understand how that individual is selecting and being compensated for the product they are recommending to you. Some financial advisors follow a fiduciary standard, meaning they are legally required to act in your best interest. These advisors typically charge fees for their services instead of earning commissions on the products they sell. Working with advisors who put your interests first can make a big difference in retirement planning outcomes.
The popularity of annuities is likely to continue as the vast majority of Americans believe it is important to have guaranteed income in retirement.4 If you have questions about whether an annuity is right for you, talk to your financial advisor or contact a DPL Consultant at 1-877-625-5544. We can help.
1 “Annuity owners value the benefits of lifetime income.” BlackRock Retirement Perspectives.
2 “LIMRA: Third Quarter 2024 Marks 16 Consecutive Quarterly Increases in U.S. Annuity Sales – Last 10 in Double Digits.” LIMRA.
3 “Welcome to the Peak 65 Zone.” Alliance for Lifetime Income.
4 “Retirement Insecurity 2024.” National Institute on Retirement Security.