2023 shatters all-time record for annuity sales

Well, it's official: 2023 was the best year for annuity sales in history.

Only a year ago, the same was true of 2022. But the latest sales numbers leave that year in the dust: In 2023, total annuity sales reached $385 billion, according to LIMRA, an industry-funded research group. That's a 23% increase from 2022, when the products took in $310.6 billion — a new record at the time.

"Obviously, it's an incredible number," said Bryan Hodgens, LIMRA's head of research. "To see the momentum of 2022 sales carry over into 2023 was really impressive."

Annuities — complex insurance products that provide a pension-like income during retirement — tend to sell better during times of economic uncertainty. But last year, even as the stock market greatly improved and inflation ticked downward, Americans continued to buy the products at historic rates.

Why are annuities still selling so well? The most obvious answer is interest rates, which are currently at their highest level in over 20 years. That means higher yields from bonds, and bonds make up a large part of many annuity portfolios — so higher interest rates mean higher payments from annuities.

But there's also another reason: FOMO. As the Fed contemplates cutting rates later this year, today's annuities become more attractive than ever.

"Annuities are more popular recently because of the increase in interest rates, which in turn means the annuity can provide a higher payout rate," said Tricia Rosen, founder of Access Financial Planning in Newburyport, Massachusetts. "If investors fear that rates may fall, then now would be a good time to purchase an annuity."

Leading the pack in 2023 were fixed annuities, which offer a specific rate of return regardless of what the stock market is doing. Last year, sales of these products reached $286.2 billion, a 36% jump from 2022 — and a new record.

Within that category, fixed-rate deferred annuities — which promise a fixed, tax-deferred interest rate — reached new heights as well. Sales of the products totaled $164.9 billion in 2023, up 46% from the record they set in 2022.

"Although almost all the product lines are seeing record sales, year over year, you're seeing a very significant amount in the fixed-rate deferred," Hodgens said. "That's been the big story."

But that was far from the only success story. Sales of single premium immediate annuities (SPIA) — which are purchased with a lump sum and start payments almost immediately — totaled $13.2 billion for the year, up 43% from 2022. And deferred income annuities (DIA) — which delay payments until a certain date or event — reached $4.1 billion in 2023, a 96% leap over the previous year.

READ MORE: What's fueling the Great Annuity Boom?

The only category that did not perform well in 2023 was traditional variable annuities (VA), whose performance is tied to the stock market. Amid the stock volatility of the past few years, consumers have shied away from these comparatively risky products — and never more so than in 2023. Last year, variable annuity sales fell to $51.4 billion, a 17% drop from 2022 and a new record low for the product.

"This is not something that's unique to 2023," Hodgens said. "For many, many years now, they have been declining."

One reason for this downturn is the arrival of an appealing alternative: the registered index-linked annuity (RILA). Like variable annuities, RILAs allow consumers to benefit from a rising stock market — but they also set a cap on gains and, importantly, on losses.

That combination of upside opportunity and downside protection is proving very popular with customers. In 2023, RILA sales reached $47.4 billion, a 15% year-on-year increase and a new record for the category.

Over the past few years, Hodgens said, variable's loss has been RILA's gain.

"The RILA business has been growing year over year, while the traditional VA has been declining," he said. "So there's sort of been this shift towards those consumers that are looking for more participation in the market … but capped at a certain level."

READ MORE: The pros and cons of annuities as havens amid market turmoil

But do financial advisors recommend annuities? That depends on which one you ask.

"I am a fee-only advisor, but I will sometimes recommend a SPIA to clients who would benefit from a predictable source of income during retirement," Rosen said. "It allows the client to take on more risk with the equity portion of their portfolio because they have the predictable source of income to cover their fixed expenses."

Carla Adams, founder of Ametrine Wealth in Lake Orion, Michigan, disagreed.

"Annuities are attractive to those looking to mitigate risk, but they come with a cost," Adams said. "I have never recommended an annuity to a client and doubt I ever will. They are very expensive and illiquid."

Nevertheless, annuity sales just finished two record years in a row. Will 2024 be another one? Hodgens refrained from making a concrete prediction, but he remains optimistic.

"I think we're going to see some strong growth," he said. "I'm very bullish for this year."