All 50 States Adopt Annuity Best Interest as Peak 65 Approaches

Last week, New Jersey became the 50th state to adopt a best-interest annuity sales standard. Like nearly all other states, the New Jersey statute is based on the National Association of Insurance Commissioners’ (NAIC) Suitability in Annuity Transactions Model Regulation which is designed to align with the Securities and Exchange Commission’s (SEC) Regulation Best Interest (Reg BI) requirements. While implementation varies slightly from state to state, with some like New York opting for stricter fiduciary-based rules, this national shift sends a clear message: annuity sales must be rooted in the client’s best interest. 

And the timing couldn’t be more important. With Peak 65 underway, more Americans than ever are reaching retirement age: over 4 million people will turn 65 each year between 2024 and 2027. As retirees navigate longevity risk and search for reliable income, annuities can play a critical role in retirement income planning. Stronger standards ensure those decisions are made with greater transparency, care, and client-first intent. 

Road to a Best-Interest Standard 

While the NAIC’s original model regulation was introduced in 2003, it has undergone various updates over the years. The most recent revisions occurred in February 2020 and were relatively substantial. Among the 2020 revisions was the adoption of a best-interest standard requiring insurance producers and insurers to meet obligations related to care, disclosure, conflict of interest, and documentation. The update also mandated that insurance professionals clearly disclose their role in the transaction and details on compensation. While not barred from recommending products with a higher compensation structure, the model does require that insurance professionals be able to show that such a recommendation is in the consumer’s best interest. 

In May 2020, Iowa became the first state to adopt the updated suitability model for annuity sales. Just five years later, all 50 states have followed suit. As more than 16 million Americans turn 65 between 2024 and 2027 the need for reliable retirement income solutions beyond Social Security has never been greater. It’s no surprise that states moved swiftly to implement stronger consumer protections. 

Confidence in Standardization 

Despite the widespread availability of annuities and the value that they can offer in the form of retirement income, very few Americans saving for retirement actually own any. According to an October 2023 report by the Board of Governors of the Federal Reserve System, only 4.8 percent of families reported having any type of annuity in 2022. This underutilization of annuities by retail investors is due, in part, to factors such as the complexity of many annuity products and their lack of availability in employer-sponsored plans, as well as the historic lack of standardized regulation. 

According to Morningstar, “Historically, the inconsistency and inadequate enforcement of state law standards has resulted in the use of aggressive sales tactics and misleading information by insurance agents selling some annuities under the traditional suitability standard of the NAIC.” However, “all 50 states have now adopted a best interest standard for annuity sales—an important milestone for consumers,” said American Council of Life Insurers (ACLI) President and CEO, David Chavern, and National Association of Insurance and Financial Advisors (NAIFA) Trustee, Dennis Cuccinelli, in a joint statement last week. “This ensures people will get professional financial guidance they can trust on products that provide a reliable lifetime stream of income in retirement. At a time when millions of workers are nearing retirement without a pension, this kind of certainty matters more than ever.”  

The Retirement-Planning Toolbox 

Annuities are a worthwhile consideration when planning for retirement. Arguably their most compelling selling point is that they can serve as a source of guaranteed income throughout retirement, mitigating longevity risk (the risk associated with outliving your retirement savings). Unlike a portfolio, which can run out if you overspend or make poor investment decisions, most annuities will pay you income for the rest of your life, much like Social Security. Having an additional guaranteed source of income in retirement may be especially valuable in managing longevity risk given the findings of a 2020 study conducted by the Society of Actuaries: “51% of the U.S. population misestimated their life expectancy by at least five years—either too high or too low.” 

Conclusion 

For many retirees approaching age 65, the key question isn’t just how will I generate income in retirement, but also how should I preserve and reposition the wealth I’ve already built? Whether it’s liquidating a major asset like a business or a home or rolling over a 401(k), these transitions create opportunities and risks that require thoughtful planning. Annuities offer one potential solution for a portion of some people’s assets, helping convert those lump sums into predictable, long-term income. 

With all 50 states adopting Best Interest standards, advisors must get up to speed and have a game plan to address client questions most appropriately about how annuities can play a role in modern, income-focused retirement strategies.