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Annuity Study: Gap Exists Between What Consumers Want and What they Buy

The 3rd Annual Guaranteed Lifetime Income Study, completed recently by Greenwald & Associates and Cannex, has given some valuable insights into the misconceptions facing the annuity industry. According to a recent article from InsuranceNewsNet, retirees and pre-retirees show great eagerness in being presented with a plethora of retirement income strategies from their financial advisors, yet they feel few advisors actually do. Additionally, participants feel that it is the responsibility of their financial advisors to present them with products that provide guaranteed lifetime income. But there is a clear “disconnect” present between what annuities can provide and what consumers say they want.

1,105 retirees and pre-retirees took part in the survey, which showed that nine out of ten of them claimed that a financial advisor should present them with multiple retirement income strategies. Additionally, 60% of participants said advisors have a duty to present them with products that guarantee lifetime income benefits as part of a retirement strategy. The respondents were all aged 55-75 and had more than $100,000 in household assets.

Annuities, which are the only financial product that retirees can’t outlive, sold $222 billion worth of individual fixed and variable annuities last year, which is 6% less than the previous year. Low interest rates are to blame for the slowdown, but cost and complexity were also seen as drawbacks by investors. Many retirees rely on monthly Social Security payments to cover the bulk of their retirement, which many industry experts point out, is in fact the nation’s largest annuity program.

Of those participants who have an advisor, a majority of 68% stated that they had discussed strategies for drawing income in retirement, yet only 28% said their advisor mentioned annuities with guaranteed lifetime income as an option. In a separate annuity research study, analysts concluded that consumers typically view financial advice in terms of where to invest, not on how to draw down assets during the income phase of the investment cycle.

“Discussions with advisors tend to veer in the direction of investment choices, growth rates and returns, metrics more important during the accumulation phase of a retirement portfolio,” said Cyril Tuohy, author of the InsuranceNewsNet article.

“People are being advised, but not being advised about drawing income,” claimed Doug Kincaid, research director for Greenwald & Associates.

“The data shows when it comes to their investment portfolios, consumers are focused on risk assets, including equities, but at the same time want to ensure that in retirement they will have the income they need to meet their needs,” added Gary Baker, president of Cannex USA. “The lack of familiarity about specific products underscores the importance of providing advisors and clients with options to meet both needs.”

But while the desire for lifetime income is obviously present, there is still a great deal of confusion about how to go about guaranteeing it. Survey participants were asked how much they would be willing to pay to receive $1,000 a month for life, and two-thirds had no idea.

In conclusion of their analysis, Greenwald stated that the solution to closing the gap between the retirement income strategies consumers claim to want and the inadequate options they say they are being offered is simply reframing the discussion. The survey found that 50% of respondents saw annuities as desirable when talking about the guaranteed lifetime income as a supplement to Social Security to cover fixed expenses in retirement. They were also found to be three times more likely to buy an annuity when advisors discuss retirement income strategies with them.

Other notable findings from the survey include:

  • 58% of respondents said that an annuity was a desirable way to safely increase income they could take from their investments annually.
  • 55% said annuities were desirable to cover essential expenses for life in conjunction with Social Security benefits and pension income.
  • 49% said annuities were a desirable way to make sure that supplemental expenses (i.e. health care costs and mortgages) were covered every year.

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