Annuity Payments Hit Record $104 Billion With Retirement Surge

Insurance companies paid out a record $104 billion in annuity benefits in 2023, up 9% over the prior year as high interest rates and a surge in retirees fueled new sales, according to research by the American Council of Life Insurers released Wednesday.

More Americans are reaching retirement age than at any other time in history, culminating in a “peak 65" in 2024, according to the Alliance for Lifetime Income. At the same time, access to traditional, defined-benefit pension plans that guarantee protected income in retirement continues to dwindle, down to roughly 15% from more than half of the private-sector workforce in the 1980s, Federal Reserve System data shows.

Insurers are jostling to fill that savings gap, offering annuity products tailored to transition 401(k) and other workplace or individual retirement plan savers into spenders.

“Yes it’s a market opportunity, but it’s also an important public policy issue as well in that we want people to have a stable, secure, lifetime income through retirement,” said ACLI President and CEO David Chavern in an interview with Bloomberg Law.

Annuities let workers invest part or all of their savings in a contract that ensures a stable stream of retirement income in the same way that pensions guarantee monthly checks. But unlike pensions, annuities are mobile and aren’t based on years of service to a specific company charged with managing the plan and its risks.

“There’s a lot of nostalgia for your classic, defined-benefits plan,” Chavern said. “But what we’re learning is that it isn’t nostalgia for a defined-benefit plan sponsored by a corporation; what people want is a secure, stable, lifetime income.”

ACLI research last month found that annuitization leads to better retirement outcomes on average than drawing down savings by 4% annually—the retirement income method experts have recommended for years.

Annuity owners paid $361 billion in premiums in 2023, up 3% compared to 2022, according to ACLI’s 2024 Life Insurers Fact Book.

Fed interest rates reached a 30-year peak in 2023, leaving room for insurers to credit annuity owners with greater rates of return. The Federal Reserve began lowering those rates this fall, but Chavern said he expects that has only a “marginal” effect on yearly benefits paid.

The annuity industry faced an apocalyptic threat in the form of newly proposed US Labor Department regulations earlier this year that would have applied strict fiduciary standards of conduct to financial advisers recommending annuity rollovers—a primary industry point of entry for millions of Americans. Federal judges in lawsuits filed by the ACLI and other industry trade groups issued preliminary injunctions halting the rule, which is expected to be undone by the incoming Trump administration.

The rule is “deeply misguided,” Chavern said, but ACLI and its industry partners remain committed to “stay the course in challenging” it.