'Silver Wave' Isn't the Only Factor Boosting Annuities

Annuities' Time to Shine?

As to why RILAs paying immediate income are proving so popular, Reddy pointed to demographic trends and more investors understanding that they need both income protection and exposure to market growth.

Knowledgeable researchers and retirement advisors are successfully making the case that annuities can effectively give risk-averse clients a "license to spend." After a lifetime of diligent saving, Reddy explained, people get used to seeing their asset pool grow. The transition to decumulation — however well planned and controlled — is a big mental hurdle to clear.

Annuities can act as a kind of circuit breaker, Reddy said, helping clients to avoid running short of funds at a vulnerable time in life. What's more, the license to spend also helps people take advantage of their assets and avoid significant underconsumption during life after work.

Another factor in annuities' growing popularity, Reddy offered, is that the current economic environment makes guaranteed lifetime withdrawal benefits look relatively less attractive from a price-to-value perspective, letting RILAs shine.

"Some people are looking at the GLWB's price point and they're thinking that they can probably get similar performance in a managed account," Reddy said.

Advisors and clients who are near or navigating retirement, Reddy said, need to understand the evolving toolset they now have access to. Securing enough guaranteed income through sources like Social Security and individually owned indexed annuities is a recipe for a financially stress-free retirement.

On Market Volatility

Another factor driving interest in annuities, according to Reddy, is the desire to avoid the pain of market volatility and to reduce exposure to sequence of returns risk.

"People have had to navigate the COVID shock and subsequent rebound, and after that you had the war in Ukraine causing market disruption," Reddy said. "Since then, we have seen a major rally driven almost entirely by infatuation with AI and the Magnificent 7. Now, we're facing another big bout of volatility as FOMO meets reality."

Large moves up and down have given many who are near or entering retirement a feeling of uncertainty about what comes next.

This creates a natural interest in guaranteed income solutions, Reddy said. RILAs can offer a significant measure of protection along with potentially significant upside when conditions are favorable.

"One interesting thing I've been trying to point out in conversations about the markets is that the typical retirement investor is well diversified, so they probably have less exposure to some of the big movers than they might expect," Reddy said. "Of course, that doesn't mean people don't get scared by the big media headlines after a big down day in the market."

Optimistic Take on Policy Landscape

With investors responding to the uncertain domestic policy outlook in a presidential election year, Reddy said he remains optimistic about the system's ability to navigate divisions in the electorate.

No matter who controls the presidency or Congress, there will be serious debate about all manner of policy issues in the years ahead, Reddy said. These range from setting the right interest rate to setting the right tax policies.

"When I'm asked about the elections, I always come back to the fact that we have three very distinct branches of government," Reddy said. "They don't always get along, yes, but that's because the system was engineered that way from the beginning.

"There's going to be disagreement," Reddy added, "but that means we're going to be forced to work together for solutions that serve the greatest number of people in the most palatable way possible across constituencies."

Reddy said this perspective is especially true when it comes to retirement planning, which continues to be an area of relatively dependable bipartisanship.

"When it comes to questions like the future of Social Security, I hope that our policy leaders can embrace the fact that no actions we take will unfold in a vacuum," Reddy said. "We need to be honest and make sure people recognize the tradeoffs of different decisions."

For example, Reddy said, it's not enough to make tax cuts and then expect potential economic growth to magically fix current imbalances within Social Security's funding and benefits structure. It is clear, he added, that more granular and specific policy actions are needed.

Pictured: Sri Reddy