So if Keith Richards owned an income annuity, what income annuity would he own?
Answer: a very lucrative one. The Rolling Stones’ guitarist, known for his hedonistic ways, turned 72 in December. It’s an age few expected the hard-partying rocker to attain.
No, Richards doesn’t really own an annuity, but Gary Baker saw an opportunity to highlight longevity needs and the mystery of life by linking him to the product. President of Cannex USA, Baker is participating in a session at the LIMRA 2016 Retirement Industry Conference in Boston.
Cannex analysts were poring over their data earlier this year around the time that several rock stars died – including David Bowie and Glenn Frey. They were all around the age – mid-to-late 60s –when many people consider buying an immediate annuity.
“The joke was you’ve got Keith Richards, who looked 70 back in the 1960s and he’s still going strong,” Baker said. “The reality is you don’t know as an individual how long you’re going to live. If you were going to put bets across those people, you would have thought Keith would go first.”
Income annuities are the favorite darlings of retirement planners because they are simple products that mimic the basic pension of bygone years. Like Keith Richards, people are living longer and an income annuity will provide a bit of longevity insurance against running out of money.
The majority of Americans (55 percent) feel financially unprepared for retirement, according to a 2015 Harris poll. Twenty-four percent believe they are somewhat prepared, and just 8 percent feel very prepared for retirement.
A 60-year-old California man who invested $100,000 in an annuity to start paying out in five years would receive $644 a month for life, beginning at age 65, according to www.immediateannuities.com.
Trend Data Revealed
Cannex partnered with LIMRA on fresh data showing who is buying and selling income annuities in various channels. Three things in particular stand out from the resulting data, Baker said.
Overall, from 2010 to the most recent data, there has been more interest in income annuities, Baker said.
“There seems to be an overall increase in the average policy size over the last seven years,” he said.
Income annuity sales posted a new record in the fourth quarter, reaching $3.7 billion, according to recent data released by the Insured Retirement Institute. This is a 15.8 percent increase from sales of $3.2 billion in the third quarter of 2015 and a 13.7 percent increase from sales of $3.3 billion in the fourth quarter of 2014.
From a distribution standpoint, Cannex found that more than 70 percent of deferred income annuities are being sold through a career agency or captive model.
“So it’s kind of heavy loaded in that direction,” Baker said. “On the income annuity side (single premium income annuities), it kind of flattens out a little bit.”
Career agencies, banks and full-service broker/dealers are the top three channels for SPIAs, he added.
Cash Refund Growing
There is ample evidence that cash refund as a guarantee option is growing more popular with clients, Baker said, and the Cannex study backed that up. Lifetime income with a 10-year period certain feature is a very solid seller, he added.
“Over the last three years or so, there has been an increase in the amount of lifetime with a cash refund option,” he said. “That may have to do with the simplicity of the story around a cash refund in presenting these products.”
Income annuities have perception issues and continue to struggle to gain a widespread foothold alongside other retirement products. But there remains significant potential for annuities to help “build a floor” for retirement income needs, Baker said.
“Using other investments or other vehicles for discretionary expenses and keeping that part of the portfolio growing in the market to potentially offset inflation seems to be a strategy that continues in positioning these products,” he explained.
After all, retirement could last as long as three decades for many people. And no money means you can’t get no satisfaction from your golden years, Baker said.
Federal Reserve surveys consistently show that nearly 40 percent of Americans have either no intention to retire or plan to keep working for as long as possible.
Even Richards and fellow bandmates Mick Jagger, 72; Ronnie Wood, 68, and Charlie Watts, 74, are planning to record a new album this year.
If only they had purchased annuities.
InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected].
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