Annuities Thrive in the US Despite Low Interest Ratespar Andrew Rickard | March 13 2015 01:58PM
Even though interest rates declined, sales of income annuities reached record levels in the United States last year. The move away from defined benefit plans may be fueling the trend.
Despite lower interest rates, which usually depress the sales of annuity products, figures compiled by industry research group LIMRA show that sales of both fixed immediate annuities and deferred income annuities hit record levels in 2014. LIMRA suggests that there may be a growing demand for guaranteed income among retirees, and says its research consistently shows that Americans' number one financial priority is to have enough money to last through their retirement.
"In the past, Americans counted on the ‘three legged stool’ for retirement income: Social Security benefits, pension proceeds and personal savings," reads an industry trends report issued by LIMRA on March 10. "Right now, only 30% of pre-retirees have access to a traditional defined benefit pension plan. For younger workers, access to pensions is disappearing."
In 2011 there were 42.5 million Americans who were retired and another 33 million pre-retirees who were age 55 and over. With the number of retired Americans expected to reach 64 million by 2025, LIMRA suggests that the pursuit of retirement income will be a long-term trend. This is especially true now that people have to rely on personal savings rather than traditional, defined benefit pensions.
"Our research shows that 65% of pre-retirees with a direct contribution 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," notes LIMRA. "This might help explain why income annuities continue to thrive in a low interest rate environment. Though familiarity with annuities remains low (46% among pre-retirees) more than half of Boomers age 50-59 are interested in converting their assets into a guaranteed lifetime income stream."