The Insured Retirement Institute recently released their “IRI Fact Book 2014,” which details all of the goings on in the retirement income and annuity industry. Warren S. Hersch summarized the nearly 200 page document for Life Health Pro in a series of articles, the second of which is “7 more retirement and annuity facts you should know“. They looked at the trends and overall health of the industry, ways to generate income and all of the new things happening with annuity products. The IRI also researched how consumers feel about and are using annuities, as well as how they are being regulated and taxed. Baby Boomer trends and retirement expectations were also looked at along with information about Generation X women and their financial habits.
The majority of annuity balances are less than $100,000. When it comes to fixed annuities, 75% of households with investable assets between $500,000 and $2 million have an annuity balance under $100,000. Sixty-eight percent of households with variable annuities have a balance below $100,000. Fixed annuity balances in these households are most often under $50,000. Twenty-eight percent fall below $20,000, while 24% are between $20,000 and $49,000. None of the annuity holders had a fixed annuity greater that $500,000.
Why are these households buying annuity products? Those investors with less than $2 million in investable assets most often purchase an annuity for the guaranteed monthly income payments. Forty-three percent of them use their annuity for income above all else. When it comes to investors with $2 to $5 million of investable assets, the potential for account growth was the top reason for buying an annuity. Forty-one percent of those investors chose growth as their top reason. The other reasons were generating guaranteed monthly income in retirement (33.7%), tax deferral (35.5%), asset protection (32.2%), diversification of their portfolio (30.7%), leaving money to heirs (17.1%) and exchanging an old annuity (16.7%). Unfortunately, more than 5% were not sure why they purchased their annuity. Those investors with more than $5 million to invest placed the greatest value on insuring some of their assets. That is why 39% of them bought an annuity.
Many women blame the struggling economy for poor retirement savings and planning decisions. More than half of Generation X and Baby Boomer women have little to no confidence that they have saved enough money to live comfortably in retirement. Forty-six percent of Baby Boomer women and 69% of Generation X women don’t know how much money they will need saved to retire. Women know that their personal savings will need to fund much of their retirement. Of those who have saved, about half of Baby Boomers have more than $200,000 and one-quarter of Generation X women have more than $100,000. Less than half of these women have worked with a financial advisor. Those who do work with an advisor do so to help with their retirement planning.
People who work with a financial advisor are much more confident about their retirement than those who do not. Nearly 3/4 of those working with an advisor feel confident about their retirement finances versus 43% of those not working with an advisor. Baby Boomers and Generation Xers who have taken the time to calculate their retirement needs are more confident about their financial future. Around half of both generations who have annuities are confident in their retirement, while only 30% of those without annuities have the same confidence. Many more annuity owners than non-annuity owners have calculated their income needs for retirement. Seventy-four percent of Baby Boomers who have annuities have worked with financial advisors. The same holds true for 62% of Gen X annuity owners. Those figures are more than halved for people who don’t own an annuity.
The IRI found that Baby Boomers are optimistic that their finances will get better in the next few years. Of those Baby Boomers planning to retire in the last year, 1/4 of them chose to continue working. Close to 30% of Baby Boomers won’t retire until at least age 70. Eighty percent of Baby Boomers have some retirement savings and half of those have over $250,000 saved. The number of Baby Boomers who have calculated how much money they need in retirement increased from 50% in 2013 to 55% in 2014. Three-quarters of Baby Boomers cite tax deferral as an important part of their retirement investments. If tax incentives were reduced or even eliminated, 40% of them said they’d be less likely to save that way for their retirement.
The majority of advisors are serving more retirement income clients in this past year. While 58% of advisors believe that their retirement income processes and capabilities are well developed and 37% believe that theirs are somewhat developed, they know that there is more work to be done. Almost all of the advisors said that improving their retirement income processes and capabilities was a priority. More than half said that the priority level is high. When asked what type of products they use for their retirement income clients, most advisors use some combination of four product types. These are variable annuities, fixed income annuities, mutual funds and ETFs. The most common combination is the use of mutual funds, ETFs and fixed annuities.
If you found these facts interesting, check back soon for more annuity and retirement income information from the IRI Fact Book 2014.