With many still wary of the stock market at the same time Americans are living longer than ever, annuities are becoming an increasingly popular option to provide a guaranteed income stream in retirement.
According to the Society of Actuaries, males have a 40% chance and females a 50% chance of living to age 85 if they reach age 65 and are in average health. And 64% of retirees say they would save more if they were to live five years longer than expected.
"Underestimation of life expectancy increases the chances that retirees and pre-retirees will exhaust all resources other than Social Security, while it may also discourage using life annuities," says actuary and retirement expert Cindy Levering. "While purchasing life annuities is not an absolute guarantee, it is one strategy to reduce the risk of outliving financial resources."
For those who retire at age 65, "you have a long way to go and if you saved $50,000, $100,000, you have two issues. One, you probably haven't saved enough and two, at some point in time you need to supplement your Social Security," says Rich Lane, director of individual annuity sales and marketing for The Standard in Seattle.
Further, when people retire they tend to be conservative investors, he says. "Instead of buying stock, they say, 'I just retired and can't afford to lose it,' so we are seeing a growth in the fixed annuity marketplace," he adds.
At an internal meeting recently with Guardian's top producers and through conversations he has had with his staff, the head of the insurance company's annuities division, Doug Dubitsky, says he has never seen interest this high in annuities - and he has been doing this for years.
Clients "are worn out about what the [stock] market has done in the last six to 10 years," he explains. "In some ways, the emotional damage people suffered and the fear of outliving our money in retirement, clients are clamoring for" annuity plans.
Freeing an adviser
The average person does not have the knowledge or experience to go through a complex process like an annuity, so that is where the adviser comes in, says Kathy Howe, EVP of American National Bank of Texas and director of wealth management in the Dallas area.
Annuities "can have many different features and the average person doesn't understand all the nuances of the annuity," she says. "A financial planner sits down with that person and understands their need and finds the right annuity product to meet them."
Guardian's Dubitsky, who works in Jersey City, N.J., says that his reps are recognizing the fact that if you don't provide some form of solution in retirement that includes guaranteed income his staff will not be able to serve their clients - and someone else will.
Many times clients will be hesitant to purchase an annuity since their "lives are paralyzed with fear. They won't execute on a [a financial planner's] advice because they are too afraid," he says. "The beauty of what annuities do is ... it frees the adviser to be an adviser again.
"We come in to solve the gap between the current level of guaranteed income, basic needs in retirement - you cover that and now as an adviser you are free yourself to manage all the discretionary spending and assets."
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