Ride the annuity bull market (while you can)

CNBC "Mad Money" host Jim Cramer famously proclaims, “There’s always a bull market somewhere.” Do annuities count, Jim? While they may not be stocks, they're absolutely on fire.  

Total U.S. annuity sales increased 4% to $63.3 billion in the first quarter of 2022, even as the S&P 500 dropped 4.6%, according to insurance industry research firm Limra. Annualize that number and you get pretty close to the record $265 billion in annuity sales set in 2008.

What was it that happened in 2008 again?

Oh, that’s right, the so-called “Great Recession,” when the stock market fell 36.5% for the year.

“I think a big part of this is the inverse relationship between recent market performance and the desires for protection," said Wade Pfau, professor of retirement income at The American College of Financial Services. "Annuities do well when markets are declining and people remember that there are potential negative impacts from accepting market risk.”

There’s no way of knowing whether equities will swoon in the second half the way they did during the housing market crash. Not even Jim Cramer can forecast that.

And it’s worth noting that bonds were indeed a place to hide back in 2008, and maybe even profit. The Federal Reserve at the time, led by Ben Bernanke, boosted bond prices by hacking away at the federal funds rate until it hit zero, while buying every corporate, mortgage and Treasury bond in sight. That’s a stark contrast to the current bear market, which is being helped along by Chairman Powell’s extensive inflation-fighting rate hike campaign.

Nevertheless, the double whammy in stocks and bonds has blown the door open for annuities and those selling them. Limra, for one, expects the momentum to continue for the rest of the year and on into next.

“The outlook for rising interest rates and fairly level equity markets will have investors continuing to look for the balance between protection, growth and guaranteed income, creating a strong potential for individual annuity sales to break the all-time record levels of sales experienced in 2008,” said Todd Giesing, assistant vice president at Limra Annuity Research. Giesing sees the potential for fixed and deferred annuity sales to top $300 billion in the next two years.

While some may accuse Geising of talking his book or financial fearmongering, he does have demographics and data on his side. According to Oxford Economics, the U.S. population aged 65 or over is expected to grow by more than 8.5 million by 2026. Meanwhile, Limra data show individual annuity product sales mainly cluster around the traditional retirement age of 65.

Furthermore, the old bugaboo of annuity vendors taking their high fees right off the top, which used to scare retail investors into index funds, has also faded (somewhat) in the past decade or so, making the hard sell much softer.

“The availability of commission-free annuities makes them usable for advisers regardless of their form of compensation,” said David Lau, founder and CEO of DPL Financial Partners

In other words, all you stock jockeys and bond brokers out there desperate to find something to sell to your quivering clients, now may be the time to get into annuities while the getting is good.

Or, to quote Jim Cramer again, “Booyah!”