Over the First Quarter, according to the preliminary results from the Secure Retirement Institute U.S. Individual Annuity Sales Survey, total U.S. annuity sales increased 4% to $63.6 billion, with fixed products benefiting from the Feds interest rate hikes.
Todd Giesing, assistant vice president of the SRI Annuity Research had this to say, “Rising Interest rates and increased market volatility shifted the product mix this quarter with fixed annuity products driving the overall growth”.
Total fixed annuity sales were up $35.2 billion, up 14% over the first quarter 2021. The double-digit growth for Fixed indexed annuities and fixed-rate deferred annuities drove the overall fixed annuity sales to pre-pandemic levels.
Fixed Indexed annuity sales were $16.3 billion, 21% higher than 2021. Fixed-rate deferred annuity sales increase 10% in the first quarter, year-over-year to $16 billion.
“Both FIAs and fixed-rate deferred products benefited from the significant interest rate increases in the first quarter,” said Giesing. “Coupled with a nearly 5% equity market decline, investors sought out principal protection and steady growth, which these products offer. Market conditions in the first quarter have made FIAs more attractive than RILAs. As a result, the remarkable growth RILAs experienced over the past three years has leveled off,” noted Giesing.
Now, with 6 projected future rate hikes anticipated by the Fed this year, how do retirees’ benefit?
If your client’s have a portion of their income coming from fixed income investments, they will begin to see those yields rise, especially those who are planning to include annuity payments as a part of their income sources.
Insurance companies sell income annuities, which are the source of annuity payments. They invest the annuity reserves in mortgages and similar loans. When interest rates rise, the insurance companies offer annuities with higher annuity payments, too. An annuity purchased today will pay more than one bought just a couple of months ago.
This increase in annuity payments also means your client can create more safe income in their retirement income plan. With both higher and more safe income, your client will have many options on recalibrating their plan.
It is said for every quarter percent Fed rate hike, the income from an annuity might increase by 1.5%. With that, your client may ask, should they wait to buy an annuity until all the predicted Fed hikes have been put in place? In a perfect world, yes. But in the real world, with a plethora of variables affecting market conditions, such as inflation, interest rate hikes, war, economic events, and even pandemics, the best course of action is to create a long-term plan for retirement income that will largely protect your client’s income against negative shocks – that can also be adjusted to current circumstances.
Give us a call today to discuss how we can improve your client’s retirement portfolio to help combat negative market shocks, today!
Golden, J., 2022. Fed Is Raising Interest Rates. How Do Retirees Benefit?. [online] Kiplinger.com. Available at: <https://www.kiplinger.com/retirement/annuities/604508/fed-is-raising-interest-rates-how-do-retirees-benefit#:~:text=For%20every%20quarter%20percent%20Fed,annuity%20might%20increase%20by%201.5%25.> [Accessed 5 May 2022].
InsuranceNewsNet. 2022. Federal Reserve To Enact The Fastest Interest Rates Hikes In Decades. [online] Available at: <https://insurancenewsnet.com/oarticle/federal-reserve-to-enact-the-fastest-interest-rates-hikes-in-decades> [Accessed 5 May 2022].
Release, Press. “Fixed Annuity Sales Boom after 1q Interest Rate Hikes, Sri Finds.” InsuranceNewsNet, 4 May 2022, https://insurancenewsnet.com/innarticle/fixed-annuity-sales-boom-after-1q-interest-rate-hikes-sri-finds.
Shell, A., 2022. Federal Reserve Raises Interest Rates Again. [online] AARP. Available at: <https://www.aarp.org/money/investing/info-2021/rising-interest-rates-impact.html> [Accessed 5 May 2022].