Understanding Annuity Buyers
Many uncertainties exist when it comes to planning for retirement. LIMRA Secure Retirement Institute research finds the top goal for American pre-retirees is to have enough money to last throughout their retirement. Owning an annuity can help them achieve this. As Americans turn 65 at a rate of 10,000 a day, it is not surprising that annuity sales have increased over the past year.
In 2018, total annuity sales were $233.7 billion, increasing 15% from 2017 sales results. Fixed annuity products drove this growth, totaling $133.5 billion, 27% higher than the prior year and an all-time high for fixed annuity sales.
LIMRA SRI analysis shows that a majority of these trends will continue over the next few years. In our report, “A Future View of Annuity Sales —
Overall Individual Annuity Market Forecast 2019-2023,” we predict the fixed annuity market will continue to thrive. We are forecasting fixed annuity sales to reach $180 billion by 2023, representing more than 60% of total individual annuity sales.
Understanding the needs and financial priorities of buyers is critical when selling annuity products. LIMRA SRI published a study of recent annuity buyers, comparing the age, contract size and types of products of individual annuity owners to help advisors and companies better understand the profiles of different annuity buyers.
LIMRA SRI research shows that pre-retirees and retirees can be broken down into three different groups.
1. Guarantee Seekers
These individuals show an overwhelming preference for creating a lifetime stream of guaranteed income. LIMRA SRI research shows that they trust their advisors and their risk tolerance is low. Forty-three percent of Americans can be described as guarantee seekers.
2. Estate Builders
This particular group views portfolio growth to be the most important. They commonly want more control over how their assets are managed, and they cautiously trust advisors. Estate builders’ investment risk tolerance is considered high. Thirty-four percent of Americans have these characteristics.
3. Asset Protectors
This faction has preservation as their primary goal. They have low risk tolerance. They typically have a high ownership rate of CDs and Treasury bills. Slightly less than one-quarter (23%) of Americans have these goals.
Variable annuity buyers may choose different types of VAs based on their investment objectives. In 2018, the total amount of VA retail new premium sold was $68.4 billion. More than half ($37.4 billion) of that premium was sold to clients looking for guaranteed income. They purchased products that included some form of guaranteed living benefit. Meanwhile, $31 billion of VA retail new premium was sold to clients looking for market growth, as they bought annuities that didn’t include a GLB (either they weren’t available or they were not elected). Just less than $1 billion was bought for both protection and market growth (sales include VA with a guaranteed minimum accumulation benefit rider).
Defining the profiles of annuity buyers underscores the varied priorities of individuals who purchase annuities. For many, creating a guaranteed income stream drives their interest in purchasing an annuity, but others value the asset protection annuities offer, and still others prize the tax deferral advantages and opportunity for portfolio growth. Understanding these distinct goals will help advisors align the most appropriate product with their clients’ financial priorities.
Age is another factor that plays into the decision to purchase an annuity, according to our research. The average age of those who purchased all annuities, except for fixed immediate annuities, ranges from 58 to 67.
VA buyers, on average, are just over 60 years old. However, there was a difference of age in buyers who elected for guaranteed living benefits. The average age of a VA buyer who had a GLB was 63 years old, while a non-GLB buyer was an average of 58 years old. GLB buyers also often had a higher average of initial premium: $165,000 for products with a GLB elected versus $123,000 for VA products without a GLB rider.
Indexed annuity buyers, on average, are 63 years old and looking for protected growth, guaranteed lifetime income options or a combination of both.
Two-thirds of indexed annuity premium is being invested by individuals between the ages of 56-70, a clear sign that individuals nearing or entering retirement are seeking guarantees for a portion of their retirement assets.
Fixed-rate deferred annuity buyers tend to be older, 67 years old on average. These products, which offer the client the comfort of principal protection with a guaranteed rate of return, also have a lower average initial premium: $103,000. These buyers likely display asset protector characteristics and are looking for a blend of principal protection and guaranteed growth.
Understanding clients’ retirement and investment objectives, and taking into account their age and accumulation stage through a retirement planning process enables advisors to make informed decisions about the appropriate annuity for their clients’ portfolios.