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Is 'Annuity' Still a Dirty Word?

Retirement Incomes

Consumers remain impacted by a stigma over annuities, but the appeal of guaranteed lifetime income products climbs sharply when framed as part of a clear retirement income strategy, new research shows. 

According to the 5th annual Guaranteed Lifetime Income Study by Greenwald & Associates and CANNEX, interest in guaranteed lifetime income products is closely tied to whether they are positioned as part of a retirement income strategy, stock market performance, covering health care costs or concerns about running out of money in retirement. 

In fact, more than a third of respondents (35%) would be less interested in an annuity that offers guaranteed lifetime income than an unnamed product that offers the same. But after hearing how a guaranteed lifetime income product would work in a floor strategy, helping to bridge the gap between Social Security and essential expenses, 71% think it would be a good strategy for their own retirement. 

The comprehensive survey of 1,005 Americans between the ages of 55 and 75 with at least $100,000 in investable assets was conducted in February 2019. An additional survey of 302 financial advisors included in the study for the first time to compare results. For that survey, all advisors had at least three years of experience and at least $15 million in AUM; at least 50% of their clients were age 55 and over, and they derived at least 50% of their income from work with individual clients.

Positive vs. Negative Perceptions

According to the report, consumers’ ratings of the positive attributes of annuities – longevity protection, ability to manage through market downturns and peace of mind – generally outweigh the negatives, but negatives do remain persistent.  

Nearly half of respondents (46%) believe annuities have too many terms and conditions, are concerned about having access to their money and believe they are difficult to understand. 

The research also reveals growing evidence that consumer sentiment appears to fluctuate based on the prevailing market environment, dropping as stocks rise and increasing when the market experiences sharp volatility. 

Those respondents who reported owning a guaranteed lifetime income product say they are less concerned about day-to-day expenses in retirement, reported being able to budget more effectively and take greater investment risk with their other assets. Product owners were less worried about losing savings during a downturn than those who do not own them (19% vs. 28%). 

Gaps Between Advisors and Clients  

The study further shows significant differences in perceptions between advisors and clients. Advisors say that they discuss income strategies with an average of 79% of their clients, but only 55% of clients report having discussed income strategies with their advisor. 

At that same time, advisors agree with consumers on the belief that concerns over access to the money and product fees/costs are two of the most significant barriers to client receptivity. The report further notes, however, that advisors appear to exaggerate the impact of financial expert warnings against annuities on client receptivity – 95% of advisors cite this as a barrier, while only 50% of consumers do.

“Perceptions around annuities, how the products are positioned, and whether they are discussed by advisors, all significantly affect whether and how consumers consider them,” notes study director Doug Kincaid of Greenwald & Associates.

The study comes as Congress debates legislation that would, among other things, offer a safe harbor for the selection and inclusion of lifetime income products in a sponsor’s DC plan, with media reports suggesting that consumer advocates are incensed about the possibility.