Annuities are increasingly popular among Americans seeking guaranteed retirement incomes. To learn what’s driving sales, who’s buying them and what types are available, SmartBrief discussed the market with Matt DiGangi, who heads MassMutual Strategic Distributors’ annuity distribution.
SmartBrief: This year has seen record sales in annuities in the US. What do you think are key drivers of that trend?
Matt DiGangi: There are several factors contributing to the rise in annuity sales. Firstly, demographic trends play a significant role, with baby boomers entering retirement. Additionally, the industry has effectively integrated annuity solutions into the retirement income planning process and the tools that advisors use with clients, making it a more seamless solution within a larger financial portfolio. Lastly, consumer education and awareness about the value of annuity solutions have definitely increased.
SB: What should advisors focus on when explaining the pros and cons of annuities to clients?
MD: Annuities offer dependable growth for investors, with variations tied to the level of market exposure an investor wants to build into the annuity, depending on where they are in their financial life cycle. Some annuities are designed to help you accumulate savings for long-term goals like retirement. Other annuities focus on providing a guaranteed income stream that begins either immediately or in the future. Of course, what makes sense for your client will depend on their goals and circumstances.
Head of Annuity Distribution
MassMutual Strategic Distributors
SB: What are the benefits that different types of annuities can deliver to investors?
MD: To understand the right annuity for a client, it’s important to understand their individual needs, their time horizons and their risk tolerance to help find the most appropriate fit for them. From there, you can consider the different types of annuities:
- Immediate Income Annuities: For clients who are in or near retirement, these have a single premium and a predictable stream that can start now. They are dependable and immediate.
- Deferred Income Annuities: For clients looking for dependability but can wait, these provide a predictable, guaranteed income stream that begins at a time your clients choose and lasts a lifetime. They offer dependability for longevity.
- Multiyear Guaranteed Annuities (MYGA): These have a guaranteed return or interest rate for 2 to 10 years, depending on what a client is looking for. They offer no downside, guaranteed returns and are very safe.
- Fixed Index Annuities: For clients looking for market upside without the risk, these include downside principal protection with the potential for a return that is tied to the market, without being directly invested. They offer limited upside and no losses.
- Registered Index-Linked Annuities: For clients looking for greater upside potential, these provide more market exposure but still limited downside, and greater upside potential.
- Variable Annuities: For clients looking for the greatest upside potential, these allow clients to invest in the market. While that comes with risk, these solutions often come with additional optional riders to protect a client’s principal or put income protection in place, to help lock in those market gains over time.
SB: What research has MassMutual done related to guaranteed lifetime withdrawal benefits (GLWB)?
MD: Variable annuities offer optional income riders that guarantee lifetime income. This is called a guaranteed lifetime withdrawal benefit and covers the life of the contract. For the annuity holder, there’s an additional cost for the lifetime income. The purpose of our analysis with Dr. Pfau was to help financial professionals compare the different options available in the marketplace and look at the pros and cons of the most popular designs. Ultimately, the research helped to uncover which annuity types produced the highest level of income across different situations and for the different needs they are trying to solve for.
SB: What are the tax benefits of annuities that advisors should be sure investors understand?
MD: Paying taxes is one of those universal certainties in life, but using retirement products that feature tax deferral, such as an annuity, can be a powerful way to help ensure you’re getting the most from your money. There are three big benefits that tax deferral via an annuity can provide that can dramatically increase the strength of your retirement portfolio:
- Deferring tax payments on your savings until you’re ready to withdraw those funds lets you hang on to more of your money year-over-year.
- Deferring taxes gives your money more time to grow and allows you to take advantage of compounding interest.
- Deferring taxes until you’re no longer actively working could potentially mean you’d pay lower taxes on your savings because your income bracket is less.
SB: What role are demographics playing in the popularity of annuities?
MD: We are anticipating the “great wealth transfer” predicted for the next 20 years, with estimates from $70 to $90 trillion. There will be a huge shift of assets to younger generations and surviving spouses – in many cases, women. They make up 51% of the population and outlive men by 5 to 10 years. It’s important that financial professionals know these markets and their motivations for retirement and financial security.
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MassMutual is not affiliated with Wade Pfau and the American College of Financial Services.
Tax deferral is automatically provided by tax-qualified retirement plans, including IRAs. There is no additional tax-deferral benefit provided when an annuity contract is used to fund a tax-qualified retirement plan or an IRA. Investors should only consider buying this contract in conjunction with a tax-qualified retirement plan or an IRA for the annuity’s insurance features such as lifetime income payments
Demographics source documents: Boston Consulting Group, Boston College Center on Wealth and Philanthropy, National Center for Women and Retirement Research, 2019; https://www.forbes.com/sites/josephcoughlin/2024/06/26/the-great-wealth-transfer-is-happening-but-not-in-the-way-you-think/
Annuity products are issued by Massachusetts Mutual Life Insurance Company (MassMutual) and C.M. Life Insurance Company. C.M. Life Insurance Company, Springfield, MA 01111-0001, is non-admitted in New York and is a subsidiary of MassMutual, Springfield, MA 01111-0001.
Variable annuities offered through registered representatives of MML Investors Services, LLC, Springfield, MA 01111-0001, or a broker-dealer that has a selling agreement with MML Strategic Distributors, LLC, Springfield, MA 01111-0001.
Principal Underwriters: MML Investors Services, LLC (MMLIS), Member SIPC®, and MML Strategic Distributors, LLC (MMSD), are both Members FINRA and subsidiaries of Massachusetts Mutual Life Insurance Company, Springfield, MA 01111-0001
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