Information Pays as it Sways Income Annuity Buyers

May 02, 2012

By Linda Koco

Tell them and they will buy, according to a study that showed that when advisors tell pre-retirees about income annuities, at least 30 percent said they were likely to purchase one.

The study of more than 1,000 adults — half pre-retirees and the other half retirees — found that receipt of information and guidance about annuitization and income annuities does correlate with increased annuity purchase intentions, said Jodi DiCenzo. She is principal of Behavioral Research Associates, the Evanston, Ill., firm that conducted the survey for the Society of Actuaries (SOA). The results were presented at this year’s Retirement Income Conference in Orlando. The conference was sponsored by LIMRA, LOMA and SOA.

More research is needed to explore other factors in the buying process, allowed DiCenzo, who is a co-author of a paper on the study findings. Still, the findings provide some basis to support the notion often bandied about in distribution circles that information and advice does count when trying to spark consumer interest in annuities.

Some people at the meeting called the research “groundbreaking,” due to its granular analysis of what types of information make a difference in the income annuity purchase process. The details are perhaps a bit more research-heavy than most advisors want or are accustomed to, but they do provide advisors with a glimpse into what prospective annuity buyers find persuasive.

Certain information counts

For example, the study found that pre-retirees’ intentions to purchase an income annuity was more strongly affected after the pre-retiree received certain kinds of information. This information includes “basic statistics” (about life expectancy, typical retirement age and life income annuities), and “anecdotal evidence” (that highlights suboptimal decision-making related to not annuitizing assets).

Among pre-retirees, 30 percent said they intended to buy after receiving the statistical information and 28 percent said the same after receiving the anecdotal evidence, DiCenzo said.

By comparison, people who were already retired were less affected by such guidance. Only 13 percent of retirees receiving statistical information voiced intentions to buy, and 27 percent said the same after receiving anecdotal evidence.

In addition, only 13.5 percent of people in a control group, who received no supplemental information/guidance at all, reported an intention to buy. Broken down by retirement category, just 9 percent of pre-retirees in the control group said they intended to buy, while 18 percent of retirees in that group said the same.

The researchers polled men and women, in the 45-70 age range, in January 2011. The surveyed individuals reported having retirement assets ranging from under $25,000 to more than $1 million. Nearly 50 percent were in the $100,000 to $500,000 range.

Where pre-retirees are concerned, the survey found they are more likely to report they intend to buy an annuity with a portion of their retirement savings. This likelihood increases not only if the pre-retirees receive the factual information or anecdotes mentioned above, but also if the pre-retirees voice familiarity with annuities; report anticipation of a longer life expectancy; and express concern about maintaining standard of living, having adequate health care, and having savings keep up with inflation.

Another favorable factor for pre-retiree intention to buy is being widowed (but this is marginally significant, DiCenzo said).

What about those who have already retired? Although their tendency to express an intention to buy an annuity is less than that of pre-retirees, DiCenzo said that retirees are more likely to say they intend to buy if they report being familiar with annuities, are female and, to a lesser extent, have a 401(k) plan.

Both pre-retirees and active retirees are less likely to report intentions to buy, however, if they are unmarried in a permanent relationship.

Likely to buy

The study also looked at the likelihood that the surveyed individuals would go ahead purchase an annuity. Here, too, the researchers found that pre-retirees—particularly those receiving information about retirement—were more responsive than retirees. 

According to the findings, two types of information had the strongest influence on retiree likelihood to buy. These were: receipt of factual, statistical information; and receipt of information about behavioral biases (biases that researchers suspect will affect retirement income choices, such as the tendency of many people to believe they will be able to work longer than will actually be possible).

These and other findings appear in the SOA research paper, which can be viewed at the SOA website. According to the paper, the results “suggest that the window of opportunity to influence annuity purchase behavior is during individuals’ working lives and may end at retirement.” That influence comes from providing pre-retirees with the types of retirement information indicated earlier.

The fact that actual retirees were not affected significantly by the type of information that swayed pre-retirees suggests “that attitudes toward annuities may be solidified once individuals reach retirement,” the researchers concluded. 

Linda Koco, MBA, is a contributing editor to AnnuityNews, specializing in life insurance, annuities and income planning. Linda can be reached at [email protected].

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Marvin Newman

5/2/2012 1:11:39 PM - New Canaan, CT

Surprised at findings for pre-retirement people. They are 60 to 65, most likely, and their % return is only around 5% or 6% for life. Those retired at 75 or 80 can figure on close to 10%. It seems that the potential sale would be better at older ages for lifetime income. I have found that. Marvin Newman 203-972-8165

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