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Fixed Equity Indexed Annuity with GLWB

I recently blogged about the psychology of annuities and why more people aren’t using this product to receive guaranteed income for the rest of their life.  Sheryl Moore from Insurance News Net read the same article as I did, “Insights into the Annuity Puzzle,” and had her own theory about why more people don’t turn to annuities in retirement.  Since the original article didn’t have much of a conclusion to the puzzle, Moore tries to come to a better understanding in her “How to Escape ‘Annuicide’.”

She says that in order to guarantee your retirement income you need to either buy an immediate annuity or annuitize a deferred annuity.  With 1/5 of Americans realizing that they will never be able to retire and a tripling of the over-90 population in the last 3 decades, you’d think more people would turn to annuities that will offer income over their lifetime.  Moore points out that only 2% of annuity contracts annuitize to guarantee a lifetime income stream and immediate annuities don’t account for a large portion of annuity sales.  She has 3 reasons why she believes this is the case.

The first reason is that people who buy annuities don’t want to lose all of their flexibility, something Moore refers to as ‘annuicide’, where they are locked into their choice.  Secondly, with immediate annuities or annuitized deferred annuities, agents lose control of the assets due to the inflexibility and they cannot change up the investment.  The third reason is that commissions are only 3% on these annuities, compared with 6.6% on some indexed annuities and agents just don’t sell them as much.  Moore believes the solution to these three issues is the use of GLWB’s with a fixed equity indexed annuity rather than the traditional use with a variable annuity.  As of this past quarter, more than half of indexed annuities had an attached GLWB, so this seems to be a good solution.

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