Pre-Retirees Express More Interest in Annuities

May 2024

The retirement landscape has changed dramatically over the past 30 years. Today’s retirees and those that came before them are more likely than future retirees to be better situated to enjoy financial security throughout their retirement. Later generations will not necessarily be in the same position unless they develop a holistic plan that includes mitigating risks and creating a guaranteed income stream.

Looking at those close to retirement, LIMRA research finds just 45 percent of pre-retirees feel “very prepared” for retirement. A third (33 percent) are very worried about outliving their assets in retirement. While this is subjective, it does suggest a majority are not confident in their retirement security. 

What changed?

According to LIMRA’s Retirement Investors — Behaviors, Attitudes, and Financial Situations, more than half of today’s retirees have access to pension income and — setting aside Social Security payments — it is the most common source of retirement income cited. These pensions provide lifetime-guaranteed income that allow retirees to feel more confident in their ability to cover basic living expenses in retirement with guaranteed income sources. LIMRA research shows 72 percent of today’s retirees report that their households receive enough income from lifetime-guaranteed income sources to cover all of the household’s basic living expenses. 

But for those approaching retirement, access to a pension is much lower and continues to drop with younger generations. Just 38 percent of pre-retirees expect to have access to income from a pension. Eight in 10 expect their defined contribution (DC) plan assets, Social Security and personal savings will be the sources to fund their retirement. This shift means future retirees may not have guaranteed income in place to fund their basic living expenses in retirement. As a result, less than half (47 percent) of working adults ages 50–75 believe they will be able to cover basic living expenses in retirement with guaranteed income sources. This represents an 11 percentage-point drop from 2017.

Economic conditions have also led to greater worries for those close to retirement. The pandemic and resulting market volatility have had an impact on investors’ mindset. Forty-five percent of investors say stock market volatility has made them more interested in investments with downside protection. As a result, interest in annuities — which was as low as 33 percent in 2018 — jumped in 2022. For the first time, a majority of pre-retiree workers (51 percent) said they would consider converting a portion of their assets into a lifetime-guaranteed annuity in retirement. Pre-retirees’ interest remained high in 2023, with 52 percent willing to consider annuities.

This increased interest in annuities is likely because many future retirees understand they won’t have enough guaranteed income from Social Security or pensions to cover basic living expenses in retirement.

The industry has seen this play out over the past two years. Favorable economic conditions — particularly rising interest rates — and consumer interest in investment protection and guaranteed growth drove record annuity sales in 2022 and 2023. In particular, fixed annuity products — which offer principal protection and guaranteed growth — represented 74 percent of total annuity sales.

This demand for protection products has been elevated since 2018 but jumped considerably in 2022 as interest rates increased, allowing carriers to raise crediting and payout rates. Three quarters of annuity sales were protection-based products in 2023. LIMRA is projecting this trend to continue through 2026.

As we know, interest and intent are a far cry from taking action. LIMRA research shows two common reasons why people who are interested in an annuity do not choose to purchase one:

1. Perceived cost/expenses
2. Loss of liquidity or access to their assets

Tomorrow’s retirees are expressing greater interest in annuities to help them protect against market volatility and create guaranteed income for retirement. But there remains much work to be done to dispel misconceptions about annuities and highlight the important role they can play in giving annuity owners peace of mind knowing they will not outlive their savings in retirement.

To learn more about how the industry can help future retirees, watch April’s LinkedIn Live episode of Industry Insights With Bryan Hodgens.

Additional LIMRA insights:

• The Retirement Journey: Navigating Retirement Perceptions and Realities
• Balancing Act: Retirement Timing and Key Considerations