Sharing resources has become very trendy over the past few years. Although this kind of philosophy is what our ancient ancestors did just to survive, it seems like we’ve recently realized the benefits of shared resources. Some examples of this newfound philosophy are Uber, Airbnb, Kickstarter and food collaboratives. Income annuities are another example of sharing resources. Financial expert Moshe Milevsky has compared annuities to tontines, the old sharing economy, for years. But now that shared resources are becoming trendy, there is a renewed appreciation for the sharing aspect of income annuities. In LifeHealthPro’s “4 reasons income annuities might be the retirement equivalent of Airbnb,” Ross Goldstein listed the reasons that an income annuity might work in your retirement income plan.
First of all, income annuities are built on pooled resources just like Airbnb and Uber. You have a better chance of getting a good price on your rental or car service when there are more resources available in any given area. Annuities work the same way. Insurance companies try to attract more people into their pooled resources so that they can offer you a better lifetime income payout from your income annuities. They account for interest rates and life expectancies of the people purchasing their income annuities. When the money is pooled together, you are able to take advantage of mortality credits since some of the people in the pool will die sooner than others. In addition to pooling mortality risk, insurance companies take the investment risk away from you as well.
Trust is the foundation of a shared resource strategy. You have to trust the person staying in your Airbnb listing as well as the one where you will stay. With income annuities, you have to trust that the insurance company issuing your product will back up their guarantees of paying you income for the rest of your life. Insurance companies are rated for their financial strength and that rating is a good indicator of how likely a company is to meet their financial promises. But you also need trust and transparency in your income annuity deal. Advisors and intermediaries help ensure the integrity of your transaction as well.
Your experience as a user is crucial to the success of a shared resource. Because the process is simple and straightforward, Airbnb is likely to remain successful. The same is true with income annuity purchases. The products guarantee lifetime income without any out of pocket fees, changing rates or question marks. You can choose from a wide array of products when searching for retirement income, many of which are annuities with different benefits and riders. Complexity often turns consumers away from annuity products, so it’s important to know about simpler annuities like the income annuity. A simple user experience, whether it is booking an Airbnb room or buying an income annuity, is the best way.
The fourth comparison is the ease at which you can get hooked on a product or service when it delivers on all of its promises. People who use services like Airbnb and Uber rarely go back to traditional hotels or taxi cabs because their needs have been better met with shared resource services. The same holds true for annuity products. Close to half of annuity owners recently surveyed went to purchase another annuity after already owning one. More than half of them were very happy with all aspects of the annuity that they owned. Only a few people said that they were dissatisfied with their annuity purchase. They are happy to have a steady and predictable income stream that they know they cannot outlive. Some are looking for additional guaranteed income and now know the importance of the shared resource aspect of income annuities.
This comparison between shared resources like Airbnb and income annuities is important because real life scenarios are easier to understand than figures and models. Of course data is also important when it comes to annuity purchases, but a simple explanation like that given in LifeHealthPro’s article is a good way to get the conversation started about income annuities. Income annuities use a similar shared resource philosophy to trendy services like Airbnb and Uber.
Written by Rachel Summit