By Linda Koco
Here is a good one for annuity buffs. What is the top reason that adults aged 40-plus buy deferred annuities? Growth potential, perhaps? Maybe tax deferral? How about tax deferral plus liquidity? What about the product guarantees?
Was the information from the online calculator the tipping point? Or, was it perhaps the influence of that “nice young man (or woman)” who provided the guidance and recommendation?
The possibilities are endless. And, of course, the reasons vary according to the unique needs and wants of individual clients. Any agent or advisor who has been in the business for very long will point that out.
Still, when LIMRA put that question to 1,200 deferred annuity buyers in the 40-plus age group, one reason stood out at the very top and it wasn’t any of the above.
The top reason was: “to supplement Social Security or pension income.” That may not sound very sexy, but that’s what the buyers told LIMRA. Joseph Montminy, a LIMRA vice president, included that finding in a presentation he gave at the recent Retirement Industry Conference in New Orleans sponsored by LIMRA, LOMA and the Society of Actuaries.
Specifically, 55 percent of the 440 variable annuity buyers who were polled gave that supplemental retirement income answer; 46 percent of 229 indexed annuity buyers gave that answer, and 42 percent of 531 traditional fixed annuity buyers did the same. The buyers were individuals who had purchased a deferred annuity within the last three years.
This top reason may seem at odds with annuity marketing strategies that focus on annuity features, subaccounts (if a variable annuity), crediting rate bump-ups (if fixed), bonuses, rider options, tax deferral and more.
Using deferred annuities to supplement Social Security or pension income typically doesn’t get top billing in annuity sales literature either, unless the literature is designed for use in income planning scenarios. Sometimes it gets no billing at all.
The finding may also seem at odds with reasons often cited by annuity agents and advisors, who tend to zero in on more annuity-specific motivators as the top reason for clients deciding to buy a deferred annuity.
In the post-recession years, for instance, many agents and advisors have said that guaranteed lifetime benefit options are what draw consumers into the land of annuity ownership. Others have named the upside potential/downside floor in indexed annuities as the big “it,” while still others point to features and benefits of a particular new annuity. Some agents say the ratings of the insurance company issuing the annuity are what really win over the customer.
But there it is in the LIMRA survey; supplementing Social Security or pension income is the top reason that annuity buyers said they had for buying their annuity in recent times.
What might agents and advisors make of this head-scratcher? The key word here is, this is the top reason that annuity buyers gave for their purchase, not annuity advisors, specialists or marketers.
This is one of those rare situations where everyone is right. The buyers’ top reason—at least, the buyers whom LIMRA surveyed—for buying deferred annuities reflects their own understanding of the deferred annuity they purchased, their own goals and needs, and also their wishes. The buyers in the survey were looking back, and the reasons they cited were the ones they remember, which may or may not be the same as the ones they had at time of purchase.
Meanwhile, agent/advisor perspectives on why consumers buy annuities will naturally reflect a more technical level of understanding of the products and markets as well as a business-level assessment of customer motivations. Annuity specialists tend to see consumer reasons through the funnel of their professional role and the trends they have noticed in their own practices, which may or may not be the same as trends identified by their peers.
In addition, buyers and agent/advisors often use different words for the same thing, again due to their different perspectives and levels of understandings.
Potential discrepancies aside, the LIMRA finding could prove useful to agents and advisors when discussing the annuity option. For instance, it might be a discussion point to broach with a client early in the conversation and also at the close, just to see if the supplemental income issue lives in the client’s interiors.
Or, the finding could nudge the advisor to remember to look for subtle signals from the client that supplemental income in retirement is a topic the client is keen on exploring. A raised eyebrow, or eyes suddenly opened wider upon hearing the words, could be enough of a “tell” to spur the advisor to discuss that top reason for buying.
If the buyer is interested in electing a guaranteed lifetime benefit option, discussing how that feature will help supplement Social Security or pension income is a no-brainer. No doubt, many agents and advisors are already having this discussion. It’s a natural fit and often recommended by retirement income experts.
Sales opportunity in income
Speaking of guaranteed lifetime income features in annuities, LIMRA’s Montminy has some statistics that underscore the sales opportunities in this market. The way he put the opportunity in his recent presentation at the Retirement Industry Conference is this: “$650 billion of assets are interested in converting a portion of assets into annuities with lifetime income guarantees.”
That finding is based on a LIMRA analysis of three major consumer studies—one published by LIMRA in 2010, one by the Federal Reserve Board in 2012 and one by LIMRA in 2012. The work covered nearly 5,300 consumers, so it has some heft. LIMRA focused on consumers aged 45 to 80, the age group that most industry studies say comprises the largest demographic of annuity buyers.
Significantly for annuity professionals who are looking for market opportunity, the LIMRA analysis found that the assets held by pre-retirees represent $474 billion of the projected $650 billion total. Flipping that around to square with Montminy’s phraseology, this means that $474 billion of pre-retiree assets are interested in converting a portion of assets into annuities with lifetime income guarantees.
What percentage of those assets will actually go into annuities having lifetime income guarantees remains to be seen. But it seems pretty evident that annuity specialists will have a clear shot at garnering some of those assets—helped along perhaps by positioning the annuity for supplemental retirement income purposes.
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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