For a lot of clients, annuities present an unacceptable tradeoff: giving up a piece of their nest egg isn’t worth the prospect of guaranteed lifetime income. According to LIMRA SRI Corporate Vice President Matt Drinkwater, such clients fall into two categories.
“If you ask people who have very little money — US$50,000 to US$100,000 — they’re not interested in lifetime income,” Drinkwater said in an interview with InsuranceNewsNet magazine, citing data that the firm obtained in a recent survey of Americans. “And the reason is that this group is replacing a lot of their income with Social Security and they don’t have much money to apply to anything anyway.”
The second group are the ones with US$3 million to US$5 million. While a case for annuities can be made for those in the $3 million range, the ones with US$5 million are “probably not going to live long enough to spend down all [their] assets,” Drinkwater said.
The “sweet spot” for annuity sales, he offered — the segment with the need and interest, as well as the money to spend on the products — can be found among consumers with US$100,000 to US$1 million in household assets. And when it comes to steering the retirement-planning discussion toward discussions about annuities, advisors have a number of options.
“If you have a client and it’s already been established that this client is concerned about outliving their assets … then it’s actually in the client’s best interest to hear about solutions that include annuity products,” he said. The talk could start with familiar sources of lifetime retirement income like government benefits and pensions, and then move on to explain that annuities are like a personal pension one pays for with their own savings.
It could also be useful to stress that the choice to buy annuities is not an all-or-none decision, Drinkwater added. Given the multiple goals and objectives people have in retirement, he argued, it wouldn’t make sense to deploy all of one’s assets toward a single goal; advisors could suggest that some portion of one’s nest egg go toward supplementing their lifetime income from government benefits, while the rest can go toward emergencies, legacies, gifting, and incidental expenses.
“I would also say that there are different flavors, different types of guaranteed lifetime income,” he said. Financially sophisticated clients with experience handling their own money typically don’t want to relinquish control, so they may not appreciate a pure annuitization product. “That’s where guaranteed lifetime withdrawal benefits on deferred annuity products are probably the better match. It allows some degree of asset control.”
For clients who are skeptical about the future viability of public pension funds, annuities can also be a good fit. LIMRA research has found such sentiments stewing among Generation-X clients, so advisors can offer annuities as an option to go with, though it doesn’t have to be immediately.