Sometimes consumers seem to live in the Land of Oxymoron where annuities are concerned. That is, they give voice to seemingly contradictory views about annuity products.
That can explain the gulfs in understanding that sometimes emerge when consumers speak with advisors. Consumers may have two minds about annuities at the same time, and that can interfere with decision making.
A new survey from The Phoenix Companies provides a window into this annuity-buying duality. Although contradictory, this dynamic can open up opportunities for annuity professionals who wish to grow market share, Ed Friderici told AnnuityNews. He is managing director at Saybrus Partners, a subsidiary of The Phoenix Companies and an insurance agency affiliate of Saybrus Equity Services.
The disconnects have to do with receptivity to annuity benefits, ideas on creating a predictable retirement income and the use of advisors for retirement planning.
Benefits. In the survey, 1,000 American consumers, 676 non-retired and 328 retired, reacted favorably upon learning about the multiple benefits that are available in modern annuity contracts, Friderici said.
In fact, nearly three-fourths (71 percent) said they would consider purchasing an annuity for at least one of the following: the ability to obtain a predictable source of monthly retirement income (49 percent), to leave money for spouse or heirs (41 percent), to provide money for chronic health care expenses (36 percent).
But although they like the features available in annuities, a lot of those folks are clueless about annuities themselves. For example, over half (53 percent) said they are not familiar with annuities and 32 percent described themselves as only “somewhat familiar.” Also, 25 percent said they would not consider purchasing an annuity, a finding that sets them apart from the large majority who said they would consider such a purchase.
So, no overwhelming group-think here.
Income stream. Another dichotomy occurred when the consumers were asked how they will convert (or are currently converting) their retirement savings into an income stream.
As might be expected from the above, annuities did not head the list. Fifty-five percent said they plan to use their savings to supplement their pension and/or Social Security only as needed, and 50 percent plan to make fixed monthly or yearly withdrawals from an individual retirement account, 401(k) or other retirement account.
Those methods entail some risk and are often inadequate, the researchers pointed out. For instance, the savings may not be sufficient, and the withdrawal plan may hinge on funds that are subject to market volatility and are not guaranteed.
Meanwhile, only 20 percent said they are planning to use an annuity for income. This is even though the annuity is “a primary vehicle for producing a guaranteed income stream,” the researchers said, and it’s even though more than twice as many (49 percent) had said they would consider purchasing an annuity to secure a predictable source of monthly retirement income.
These findings are clearly at odds with themselves.
Advice. Consulting with a financial professional about converting retirement savings into a predictable source of monthly income is not big on the to-do list for non-retirees in the Phoenix survey.
For example, only 36 percent of non-retirees said they either currently work with a professional on this issue or have ever done so. That leaves over 60 percent who simply aren’t talking about retirement with financial professionals.
Yet among those who do talk with professionals, 85 percent report feeling confident about converting their retirement savings into a predictable source of monthly income. Only 62 percent of the never-used-a-professional group said they feel the same.