A new study, conducted by Jackson National Life Insurance Company and the Insured Retirement Institute (IRI), has found that while most Americans are interested in financial strategies that provide guaranteed lifetime income, many are unaware that annuities can provide it. The nationwide study, The Language of Retirement 2017: Advisor and Consumer Attitudes Toward Securing Income in Retirement, showed that 75% of all participants claimed to be familiar with annuities, yet only 46% understood an annuity can provide lifetime income.
In addition to consumers, advisors also participated in the study. According to a recent press release, more than 80% of advisors said that guaranteed lifetime income features have had a positive impact on their clients, including one-third who said it was the most impactful feature of annuities. Additionally, 90% of all consumers who responded, and 95% of those 35 to 44 years old, said that they are very or somewhat interested in receiving lifetime income. Great news for the annuity industry, right? Not necessarily. Despite the general positive perceptions of the benefits of guaranteed lifetime income, only one in four participants age 45 and up actually plan to purchase an annuity.
“This disconnect is devastating to American savers and the advisors who are trying to swerve the best interests of their client,” said Barry Stowe, chairman and chief executive officer of the North American Business Unit of Prudential plc, Jackson’s parent company. “Retirees need guarantees to protect their lifetime income and our research proves people want this benefit. It’s our job to educate Americans and ensure they know annuities are designed to prevent consumers from outliving their income so they can live the retirement they want.”
The biggest fear for savers is often the fear of running out of money prematurely. And according to financial professionals, it’s a very valid concern. More than half of the professionals surveyed believe that some of their clients who do not own annuities will run out of money in retirement. They also admitted to having clients who exhausted their financial resources, blaming overspending and health care costs. While annuities can help solve this issue, advisors also indicated that there are challenges that limit the use of annuities. One of those challenges is the negative perception many consumers hold.
“It’s more critical than ever that our industry overcomes the existing bias toward annuities, simplifies the language used to describe them and increases the overall understanding of the power of a well-structured modern annuity so Americans will be more receptive to using them to reach their financial goals,” said Emilio Pardo, chief marketing and communication officer for Jackson.
Other key findings of the study include:
- Younger consumers express a greater interest in the income features provided by annuities than older respondents.
- 80% of consumers say they do not believe Social Security alone will provide them with sufficient income in retirement.
- Just 21% of consumers expect a pension to provide them with enough retirement income.
- 40% of consumers believe their personal retirement savings will be their most significant source of retirement income.
- ⅔ of consumers believe it is somewhat or very likely that their retirement savings will be significantly affected by a health event.
President and chief executive officer of IRI, Cathy Weatherford, believes the study indicates a great need and opportunity to educate all Americans on building a “holistic” retirement plan.
“This study is a critical step toward understanding how future generations plan to save for retirement,” she said. “It is particularly alarming that the study found half of consumers plan to regularly withdraw money from their retirement savings to cover basic and discretionary spending, an approach that carries a high risk of depleting assets, especially among those who live longer.”
Written by Rachel Summit