People are living longer, thanks to improved medical care and an increase in technology. This increasing longevity leads to higher longevity risk as Americans struggle to finance these longer life spans. In Insurance News Net’s “Longevity Risk Leads To Growth Opportunity,” Linda Koco says that the annuity industry can meet the changing demands of Americans as they live longer. The Deloitte Center for Financial Services says that this is an important time for the annuity industry. Their 2015 Life Insurance & Annuity Industry Outlook report says that addressing longevity risk is one of five important “pillars for long-term success”. Annuities help consumers to save and create income, two important ways to address longevity risk.
Half of the people that Deloitte surveyed two years ago said that they were worried that they hadn’t saved enough for their retirement. Forty percent actually felt helpless about their ability to have enough retirement income. Ten thousand Baby Boomers turn 65 every day, increasing the need for a product to help create retirement income. Deloitte puts responsibility into the hands of annuity carriers to educate the public on how annuities can be used to finance their retirement. They point to the use of annuity products within 401k plans because many Baby Boomers have a significant portion of their retirement savings in these workplace plans. There has been a push to include income potential in 401k and IRA statements in the future. Not only will you know your total account balance, but you will also know how much income you can generate over your lifetime with your current retirement savings. Some retirement plans already include this important information.
Many people are calling for a change in regulation that requires all retirement plans to offer some type of annuity to create a lifetime income stream. Deloitte says that annuities are the natural product to include in retirement plans to offer longevity coverage. The government made a few regulation changes last year to support the use of annuity products within 401k and IRA retirement plans. One regulation made it easier to use Qualified Longevity Annuity Contracts (QLACs) in retirement plans. The government also made the change allowing employers to include annuities in target-date mutual funds, which are often the default investments in 401k plans. There have been many public statements supporting income annuity products as a way to create lifetime retirement income, especially within qualified retirement plans.
Annuity carriers are in a prime position to capitalize on the increasing longevity of people today. They really need to educate consumers on how annuities can be used to create a lifetime income stream during retirement. It’s also important to make annuities more readily available in 401k plans and IRAs because these plans carry the bulk of some people’s retirement savings. One of the biggest challenges for annuity carriers will be to find a balance between staying profitable in long-term markets and offering consumers what they want. They have to look at annuity development as an ongoing process rather than a one-time event where they hope for the best in terms of profitability. Some people have suggested the innovation of products that meet life insurance, lifetime income and long term care insurance needs all in one. This type of hybrid would take a lot of expertise and trial to introduce, but may come about in the future. As longevity increases, it’s crucial for the annuity industry to educate consumers on the importance of using annuity products to create retirement income.