When Were Annuities First Invented and Then Introduced in the US?

Annuities are an Historically and Immediately Relevant Financial Product
Annuities are an Historically and Immediately Financially Relevant Product. By Raul_Wong/Moment/Getty Images

Annuities are old, I mean very old.  Financial historians trace the first annuity type structure all the way back to the Roman Times.  While some even argue that the first annuity may go back from 1700 to 2000 BCE in ancient Egypt. There is some evidence that a prince from a place called Sint supposedly developed annuity type payments. Annuities are essentially a simple financial instrument to deliver promised payments for the lifetime of the annuitant or their beneficiaries.

The simple payment structure and guaranteed payments have obviously stood the test of time. 

The Romans were the first to literally structure lifetime payments for their soldiers and their families.  Those payments were referred to as “annuas” which is the Latin word for annual payments, and subsequently the root base of the word annuity. Today’s Single Premium Immediate Annuity (aka: income annuity or pension annuity) structure resembles  those first annuities.

The first annuity was offered in the United States in 1759 in the great state of Pennsylvania.

A lifetime retirement payment plan was developed for retiring church pastors.  This is the first American pension payment on record.

In 1776, a big year for this country, The National Pension Program for Soldiers was passed as law.

This happened even before the Declaration of Independence was signed!  That is what I call putting priorities in order.

 These early annuities were designed to guarantee a lifetime income for not only soldiers, but their families as well.

In 1812, the first annuity company was established in Pennsylvania. 

The company was called The Pennsylvania Company for the Granting of Annuities, and this signified the first time annuities were offered to the general public.

  I’m not sure if this is true or not, but the first “bad chicken dinner” annuity seminar was held soon after!

Andrew Carnegie entered the world of annuities in 1905 establishing The Teachers Pension Fund.

This fund provided annuity pension payments to retired teachers.  By 1918, Mr. Carnegie’s annuity experiment had grown, and The Teachers Pension Fund became the Teachers Insurance Annuity Association.  You might be familiar with the acronym TIAA.  Yes, it’s the same TIAA of TIAA-CREF, that’s still doing business to this day as one of the strongest insurance and annuity companies in the country.  Trivia Alert! The CREF of TIAA-CREF stands for College Retirement Equities Fund.

In 1952, TIAA-CREF introduced the first variable annuity.

I’m sure the original designers would be shocked to see how complex this product has become.  It took Congress 34 years to address this growing annuity product. A law passed in 1986 allowed people finally to benefit from tax deferred growth by using annuity products.  This tax benefit was the true impetus for the rapid growth of annuities in my opinion, and is still one of the primary benefits that deferred annuities offer when held in a non-IRA account.

Income riders (attached benefits to a deferred annuity) were introduced in 2003, as an addition to some variable annuities.

  After the stock market hiccup in 2008, income riders became very popular as people were looking for guarantees, and not just growth.

The first indexed annuity (aka: fixed index or equity indexed) hit the financial scene in 1995. 

These unique fixed annuity structures were designed then and now, to compete with CD returns.  Unfortunately, too many agents pitch indexed annuities as market growth products, which they are not.  I would bet that most indexed annuity agents don’t know the history of the product, and what it was designed for.

Finally, in 2004, the first Longevity Annuity (aka: Deferred Income Annuity) was introduced by MetLife.

DIAs rose in popularity starting in 2010 as other carriers started offering this simplistic and efficient income later strategy.

So the next time you hear someone say, “I hate all annuities”, you might want to tap them on the shoulder and inform them of the diverse and interesting history of these unique transfer of risk strategies.