![](\"https:\/\/insurancenews.s3.amazonaws.com\/InnMagazine\/more-consumers-say-yes-chart1.jpg\")
<\/p>\n\nIt\u2019s a choice many people face when they hit retirement age: Keep their funds in a lump sum \u201cnest egg\u201d or put some of that money into a vehicle that provides them with guaranteed income for life.<\/p>\n
\nLIMRA research indicates more people are receptive to the guaranteed income option, but certain consumer segments are more receptive than others.<\/p>\n
\nHaving enough money to last a lifetime was the major goal across all financial segments in a recent LIMRA Secure Retirement Institute survey of pre-retirees and retirees. In addition, as many as one-third of pre-retirees said they fear running out of money in retirement.<\/p>\n
\nYet, despite these concerns, less than half (47%) of Americans said they would be willing to convert at least part of their assets into a guaranteed lifetime income stream. Thirty percent of pre-retirees and retirees said they would be interested in this option.<\/p>\n
\nBut these somewhat low percentages mask the fact that a strong majority of consumers across all income groups agree that having guaranteed lifetime income gives people peace of mind in retirement.<\/p>\n
\nIn addition, when presented with a hypothetical choice at retirement between guaranteed income and a lump-sum amount, more than half (52%) of pre-retiree and retiree investors selected guaranteed income, LIMRA SRI researchers found.<\/p>\n
\nIf consumers are saying they value having guaranteed income in retirement, why are so few of them buying annuities? And are consumers becoming more receptive to putting some of their funds into an annuity?<\/p>\n
\nConsumers have become more receptive to annuities over the years, and guarantees are part of the reason, according to Matt Drinkwater, LIMRA SRI corporate vice president.<\/p>\n
\n<\/p>\n
\n\u201cIf you go back to 2008, because of the financial crisis, people were seeking guarantees but they also were skeptical of guarantees because, at that point, everything seemed to be crashing down,\u201d he said. \u201cIf you asked people the value of guarantees, it was low at that point. But it actually has gone up since then, and now we see regularly in our research about 40 percent of people who are in that appropriate age range for annuity purchases expressed interest in the concept.\u201d<\/p>\n
\nPre-retirees are afraid of outliving their income, LIMRA research showed, and the greatest fear shows up among those with between $100,000 and $499,000 in household financial assets.<\/p>\n
\nMuch of that fear stems from the realization that today\u2019s pre-retirees will have a post-employment life much different than that of their parents and grandparents, Drinkwater said.<\/p>\n
\n\u201cToday\u2019s pre-retirees will probably live longer. They might also have a longer health span, so they\u2019ll be healthier and more active. That requires more money, more income to maintain their living standards. And, for a variety of reasons, they can expect to receive less income replacement from Social Security and certainly less from pensions. So when we compare pre-retirees with retirees, we do tend to see that pre-retirees express more of a concern about outliving income.\u201d<\/p>\n
\nBut, Drinkwater cautioned, the concern about outliving income in retirement doesn\u2019t necessarily mean people are concerned about living to age 100 or beyond.<\/p>\n
\n\u201cIt\u2019s not that people are thinking, \u2018I\u2019m going to live 45 years in retirement,\u2019\u201d he said. \u201cIt means, \u2018However long I do live in retirement, I\u2019m worried about spending down my assets. I don\u2019t know how much I can spend. I don\u2019t know what a safe withdrawal rate is. I\u2019m concerned about health care costs.\u2019 So I think that\u2019s playing into that concern about outliving income.\u201d<\/p>\n
\nAlthough the LIMRA study showed consumers had a certain amount of annuity reluctance, those consumers who do own annuities showed confidence in their ability to live their desired lifestyle in retirement.<\/p>\n
\nAnnuity owners had greater confidence than non-owners across all income segments, but that confidence was most pronounced among those with $1 million or more in household assets. So does that confidence come from the wealth or from the annuity? Drinkwater has a theory.<\/p>\n
\n\u201cThe first effect is wealth. Richer people express more confidence,\u201d he said. \u201cSo it\u2019s interesting to see if these two effects interact in some way.<\/p>\n
\n\u201cBut, controlling for wealth, we still see this positive effect of annuity ownership on retirement confidence. There\u2019s something about annuity ownership that has appeal across these wealth segments.\u201d<\/p>\n
\nAn \u201cinteresting curved pattern\u201d exists when it comes to interest in annuities, Drinkwater said.<\/p>\n
\n\u201cIf you ask people who have very little money \u2014 $50,000 to $100,000 \u2014 they\u2019re not interested in lifetime income. And the reason is that this group is replacing a lot of their income with Social Security and they don\u2019t have much money to apply to anything anyway. And those who have $3 million-$5 million, they\u2019re not interested. Those with $3 million, you can still make an argument for annuities, but once you get to $5 million, you\u2019re probably not going to live long enough to spend down all your assets anyway.\u201d<\/p>\n
\nThat makes consumers in the mass affluent segment \u2014 those with $100,000 to $1 million in household assets \u2014 the \u201csweet spot\u201d for annuities, Drinkwater said.<\/p>\n
\n\u201cThey have the need, they have the money, they\u2019re interested. Outliving their assets is a real risk for them. And we have seen that in our research,\u201d he said.<\/p>\n
\nAdvisors can steer the retirement-planning discussion into a conversation about annuities in a number of ways, Drinkwater said.<\/p>\n
\n\u201cIf you have a client and it\u2019s already been established that this client is concerned about outliving their assets, if you know it\u2019s an overriding priority with them, then it\u2019s actually in the client\u2019s best interest to hear about solutions that include annuity products,\u201d he said. \u201cThe advisor could start out by discussing familiar concepts such as Social Security and pensions. People understand that those provide lifetime income to retirees.<\/p>\n
\n![](\"https:\/\/insurancenews.s3.amazonaws.com\/InnMagazine\/more-consumers-say-yes-chart2.jpg\")
<\/p>\n
\n\u201cAnd an annuity is like a personal pension. The catch, of course, is that you\u2019re applying your own savings to pay for it. People say, \u2018I saved up that money and you\u2019re asking me to hand over a portion of it and I don\u2019t know how I feel about that.\u2019\u201d<\/p>\n
\nBut more people will reach retirement age with their wealth tied up in defined contribution plans and individual retirement accounts, Drinkwater added.<\/p>\n
\n\u201cI would say, what is the purpose of those funds? Aren\u2019t those savings there that you built up for retirement income, not to sit watching the stock market and you do nothing with that money, you\u2019re not using that to improve or at least maintain your living standard? I would say that money is there to generate income.\u201d<\/p>\n
\nThe annuity buying decision \u201cis not an all-or-none decision,\u201d he said.<\/p>\n
\n\u201cPeople have multiple goals and objectives in retirement. It doesn\u2019t make sense to deploy all the assets toward one goal,\u201d he said. \u201cSo advisors would start by saying, \u2018Look, how do we deploy the assets you\u2019ve built up over the years, and some portion of those should probably go toward topping off your lifetime income from Social Security and the rest can go toward emergencies, special expenses, legacies, gifting and all of that.\u201d<\/p>\n
\nIt might take some convincing to get a client to give up control over part of their nest egg to convert it to guaranteed income. Keep in mind that the LIMRA study showed only 30% of retirees and pre-retirees were interested in putting part of their savings into a retirement income product. Drinkwater had some suggestions for advisors.<\/p>\n
\nAdvisors will never be able to convince everyone to purchase guaranteed lifetime income products, he said. Annuities may not be suitable for everyone, and there will always be some consumers who have such a negative opinion of the product that an advisor won\u2019t be able to change their minds.<\/p>\n
\n\u201cYou have to let some of these people go if you can never convince them,\u201d he said. \u201cI think the more achievable goal is to identify those clients who have both the need and at least some acceptance of the concept.\u201d<\/p>\n
\nLIMRA SRI research showed consumers have varying degrees of annuity acceptance. Instead of trying to convert the annuity haters into annuity buyers, Drinkwater said, there is more sales opportunity in the segment that says annuities are not the right product for them right now.<\/p>\n
\n\u201cI would also say that there are different flavors, different types of guaranteed lifetime income,\u201d he said. \u201cThose more financially sophisticated clients \u2014 the ones with more experience managing money \u2014 they\u2019re the ones who don\u2019t want to relinquish control. So a pure annuitization product isn\u2019t going to resonate with them.<\/p>\n
\n\u201cThat\u2019s where guaranteed lifetime withdrawal benefits on deferred annuity products are probably the better match. It allows some degree of asset control. These clients could appreciate more detailed proofs establishing how the lifetime withdrawal benefit works.\u201d<\/p>\n
\nGeneration X clients are skeptical about Social Security\u2019s future, Drinkwater said, making this group a good market for annuities. \u201cAdvisors can tell them, \u2018Social Security will be there but it will only support so much of a working income. There is a way to get a reliable paycheck for life in retirement, maybe we can talk about it in a few years.\u2019\u201d<\/p>\n
\nBut for most consumers, Drinkwater said, the key to getting them to accept annuities is for an advisor to \u201cboil down annuities to their core value \u2014 what do they do for me?\u201d<\/p>\n
\n\u201cWhy should I care about this product? Because this product provides you peace of mind. You don\u2019t have to worry about this aspect of your retirement.\u201d<\/p>\n