Consumers love annuities but are hesitant to buy them. And annuity buyers are trending younger.
Those are among the findings of recent research into consumer attitudes toward lifetime income products.
Retirees and preretirees overwhelmingly want their financial advisors to present them with a smorgasbord of retirement income strategies, but few advisors actually do. That was the finding of the third annual Guaranteed Lifetime Income Study.
Consumers also believe financial advisors have a responsibility and a duty to present them with financial products that provide guaranteed lifetime income, the study said. And there’s where the disconnect begins.
There’s a gap between what consumers say they want and what consumers say advisors are giving them. That gap is a sign of a stubborn “disconnect” between what annuities can provide and what consumers say they want, said Doug Kincaid, research director for Greenwald & Associates.
“With both the consumers and the advisors, that goes unspoken,” he added.
Greenwald conducted the joint survey with Cannex, an analytics platform that supports the exchange of pricing information for annuity and bank products. The survey polled retirees and preretirees with more than $100,000 in household assets.
Nine in 10 survey respondents said financial advisors should present them with multiple retirement income strategies.
In addition, 60 percent of respondents said advisors have a responsibility to present them with products that offer guaranteed income benefits as part of a retirement income strategy.
A Question of Positioning
Of the respondents who have an advisor, 68 percent said they had discussed strategies for drawing income in retirement, the survey found.
But the survey also found that only 28 percent of respondents said their advisor mentioned annuities with guaranteed lifetime income as a strategy.
Separate annuity research concluded that consumers tend to view financial advice as information about where to invest, instead of how to draw down assets during the income phase of the investment cycle.
Consumers said their discussions with advisors tend to veer in the direction of investment choices, growth rates and returns. These metrics are more important during the accumulation phase of a retirement portfolio.
Left behind is how to protect income or how to structure guaranteed income streams more efficiently in the drawdown phase of the portfolio.
“People are being advised, but not being advised about drawing income,” Kincaid said.
So income-generating products tend to get short shrift when in fact, dozens of annuity product types exist in the market.
“The data shows when it comes to their investment portfolios, consumers are focused on risk assets, including equities, but at the same time want to ensure that in retirement they will have the income to meet their needs,” Gary Baker, president of Cannex USA, said in a news release.
“The lack of familiarity about specific products underscores the importance of providing advisors and clients options to meet both needs,” he added.
Consumers often find it difficult to quantify how much a guaranteed income stream for life is worth, Kincaid said.
When asked how much they would be willing to invest to receive $1,000 a month for life, two-thirds of respondents had no clue, the research found.
Bridging the Divide
The chasm between the retirement income strategies consumers say they want and the paltry options they say advisors are giving them could be bridged if retirement income discussions are reframed, the study concluded.
When talking about guaranteed lifetime income positioned to supplement Social Security in covering fixed expenses during retirement, more than 50 percent of respondents see annuities as desirable, the survey found.
Clients are three times more likely to buy an annuity when advisors discuss retirement income strategies with them, the research found.
The survey also uncovered the following:
» 58 percent of respondents said that an annuity was a desirable way to safely increase the amount of income they could take from their investments each year.
» 55 percent said annuities were desirable to cover essential expenses in coordination with Social Security and pension income.
» 49 percent said annuities were a desirable way to make sure that supplemental expenses such as health care costs and mortgage payments were covered every year.
Previous Greenwald surveys have picked up on the fact that consumers intuitively grasp the value of annuities and lifetime income, even though overall individual annuity sales remain flat.
Annuity Buyers Trending Younger
Not only are consumers becoming more intrigued by the benefits of owning
annuities, but the average age of income annuity clients is going down.
The average age of primary annuitants for income annuities dropped to 65.6 years old in 2016 from 66.6 years old in 2015, according to the annual Cannex USA survey. The average age of joint annuitants for income annuities also dropped to 63.1 years old last year from 64 years old in 2015.
What’s driving the trend? Defined benefit pensions continue to disappear, so younger clients are purchasing guaranteed income streams before retirement, Baker said.
An increase in deferred income annuity (DIA) sales also is contributing to the drop in average buyer age, Baker added.
“The item that jumped out at me in the report is that the average age of clients is going down and that’s because there are more deferred income annuities being sold than in the past,” Baker said.
“There’s been a gradual shift from single premium immediate annuities (SPIAs) to deferred income annuities (DIAs) over the past five years.”
The ratio of SPIAs to DIAs has moved from roughly 75 to 25 percent in 2014 to 70 to 30 in 2015, to 65 to 35 last year, he said.
DIA Buyers Younger Than SPIA Buyers
DIAs are being positioned to younger buyers as a means to establish their own pension in pre-retirement, Baker explained.
The average age of DIA contract buyers is between 59 and 60 years old, the data show.
The average age of SPIA buyers is between 69 and 70 years old. SPIA buyers typically want to purchase a contract before minimum distribution requirements from their retirement accounts kick in at 70.5 years old, Baker said.
“That overall mix between the qualified and nonqualified may be changing too because of the dynamics between SPIA and DIA,” he said.
A monthly payout frequency remains the most popular payment interval by far with 87.4 percent of quotes tied to that cycle in 2016, a slight increase from the 86.7 percent in 2015.
New Jersey Leads in Quotes
More income annuity quotes in 2016 came from New Jersey — 152,680 — than from any other state, according to the Cannex USA survey. The data is surprising since states such as Florida and California have much higher overall populations.
Data show that 12.2 percent of all quotes came from New Jersey, compared with 9.5 percent from Florida and 8.86 percent from California.
The reasons so many quotes come from New Jersey, with a population of 9 million, could be because of the concentration of financial advisors living and working there, Baker said.
The New York metropolitan area has by far the highest employment level of financial advisors in the U.S., according to the Bureau of Labor Statistics.
In the southern part of New Jersey, financial advisors serve people living in and around Philadelphia, still a wealthy market by nationwide standards even if not as large or as wealthy as New York.
That makes New Jersey a unique demographic when it comes to wealth concentration and the number of advisors catering to that wealth.