Will Income Be The Main Reason For Buying Annuities?
April 21, 2015 by N/A
Question: Is the day coming when annuities will be sold primarily for their income features, and only secondarily for build-up, tax-deferral, spend-thrift issues and other purposes? Why?
“On an absolute basis, the answer is no. Only a small percentage of annuity owners elect to annuitize their policies, for instance. I wish that most people would buy financial products for the goal they are trying to achieve. But they don’t. The current economic environment influences that. If it’s positive, people tend to focus on accumulation. If they’re in a challenged environment, they tend to focus on safety and retirement income. Some of this depends on who the annuity is sold to, and on whether they are pre-retirees or retirees. But their own goals have nothing to do with whether the stock market is up or down. Their goals should be about whether a product is good for them. Evaluating this should be done in advance of, say, retirement at age 65. That’s what agents are for, to ask the right questions and help consumers understand their own goals and the risks they will take on with the financial decisions they make. The good thing about annuities is, the products can line up with consumer needs and goals and a variety of risk approaches. You can structure annuity products in many ways, such as for accumulation, income, equities investing and guaranteed savings.”
– Brian Grigg, vice president-annuity distribution leader, Fidelity & Guaranty Life, Des Moines, Iowa
“Use of annuities for income will grow significantly. There are a number of reasons for this. Fewer people have defined benefit income, for instance. In addition, net income from Social Security (due to rising Medicare costs, for example) will decline as people live longer and as annuity manufacturers get more skillful in showing the benefits of annuitization. There will be more stress on people’s retirement income because of the end of the bull market in bonds, the rising longevity, the rising costs of health care, and higher lifestyle expectations. All these stressors will lead people to put more value on efficient income solutions. Annuitization is one of those efficient solutions. Sufficient industry research shows this. Specifically, it shows that use of income annuities in the fixed part of a person’s portfolio leads to greater assets in retirement for people who live longer than average or are in certain other circumstances.”
– Mathew Greenwald, president, Mathew Greenwald & Associates, Washington, D.C.
“It’s an uphill battle. We continue to have the same problems we’ve always had, which is to persuade financial advisors of the value of annuities. In an earlier decade, annuities were promoted for accumulation purposes with little attention to income in retirement. In the 1990s, it seemed as if immediate variable annuities would help with accumulation and income, but the guaranteed living benefit features came along and killed that. Later, after the last recession, the carriers started backing away from those guarantees. This doesn’t trend well for positioning annuities for income. With the rise of defined contribution plans, some people believed there would be a huge demand for products to help convert those assets to income. But the demand never happened. It’s true that advisor sentiment against annuities has been shifting somewhat today to be more favorable, but this still has a long way to go. It needs to reach a level that gets the attention of companies to innovate. It needs to reach the level where we don’t pull people into this but rather that people push to get into these products.”
– William Ayers, principal, DSG Network, Wayne, Pa.
