Sentiment toward annuities could be better than expected

Advisors could be underestimating the degree of interest consumers have in guaranteed lifetime income products

Sentiment toward annuities could be better than expected

Advisors who don’t think they can convince their clients to include annuities in their portfolio may find themselves pleasantly surprised.

In February, US-based research firm Greenwald & Associates and CANNEX conducted their fifth annual Guaranteed Lifetime Income Study. It included a comprehensive survey of 1,005 Americans between the ages of 55 and 75 with at least US$100,000 in investable assets, as well as an additional survey of 302 financial advisors.

According to the findings, 67% of those close to retirement or in the early stages ascribe high value to guaranteed income to supplement their Social Security. And when guaranteed lifetime income (GLI) products were presented as part of a retirement portfolio strategy to cover essential expenses and supplement social security, 71% thought it would be a good strategy for their own retirement.

The survey also found mounting evidence that consumer sentiment on GLI products drops as stocks rise, and increases during periods of sharp market volatility. The top retirement concerns driving interest in guaranteed income include paying for long-term care, meeting healthcare needs, and not outliving one’s money.

“There's strong consumer interest in guaranteed lifetime income products to provide peace of mind knowing they will be able to meet their basic needs in retirement,” said study director, Doug Kincaid of Greenwald & Associates.

Consumers’ ratings of positive attributes of annuities were found to be consistently higher than the products’ perceived negatives. Nearly half (46%) of consumers said they believe annuities include too many terms and conditions, are concerned about having access to their money, and believe they are difficult to understand. Another 35% said they would have less interest in an annuity that offers guaranteed lifetime income than in an unnamed product with identical features.

The study also revealed high satisfaction among respondents who said they owned a guaranteed lifetime income product, with 60% being satisfied and three quarters saying they would recommend them. Such satisfied customers said they are less concerned about day-to-day expenses in retirement, are able to budget more effectively, can spend more on discretionary items, and can tolerate greater risk in their other investment assets. GLI product owners also registered less worry over losing savings in a downturn compared to those who did not own such products (19% vs. 28%).

It also uncovered a gap between the perceptions of advisors and clients. While advisors said they discuss income strategies with an average of 79% of their clients, only 55% of clients said they have had such discussions with their advisor. The study also found that advisors consistently underestimate the interest clients have in GLI products.

“The message around guaranteed income products is getting lost in translation,” said Tamiko Toland, head of Annuity Research at CANNEX. “The research … reveals a disconnect between what advisors think clients want and what clients say they want, but it also highlights opportunities to discuss retirement income strategies and products in ways that will resonate more strongly.”