For too long, the retirement discussion has focused on accumulating assets instead of protecting income for life. And the jargon surrounding annuities and other retirement products has confused consumers.
Financial advisors need a new approach with which to engage clients about annuities, and a coalition of 24 insurers and asset managers has banded together to help.
The goal of the nonprofit Alliance for Lifetime Income is to:
- Educate advisors and consumers about the value of annuities.
- Move the discussion away from asset accumulation and toward protecting income for a life.
- Simplify the language around annuities and kill the jargon.
In the past, pension plans protected retirement income. Pension managers served as de facto financial advisors who invested in annuities to deliver monthly paychecks to retirees, many of whom had never even heard of an annuity.
But as defined benefits plans yielded to defined contribution plans, discussions about protecting income never followed suit. Along the way, the idea of income protection lost out to the goal of accumulation.
“As a nation, we have vastly expanded 401(k)s and other retirement accumulation vehicles, but have not tackled the looming issue of securing retirement income,” said Jana Greer, president and CEO, Retirement, for Alliance member AIG.
With advisors guiding consumers through a pay-as-you-go retirement funding model, the Alliance wants to inject more urgency into thinking about protection. More information is available at the Alliance’s website www.retireyourrisk.org.
Slaying the Jargon
Language and terminology around annuity discussion is a “work in progress,” said Jean Statler, executive director of the Alliance.
For starters, advisors can skip jargon-laden phrases such as “guaranteed income” and “longevity risk,” Statler said.
The problem with the word "guaranteed" is that for many people “it’s too good to be true, so we say it’s ‘protected’ income,” she said.
Advisors should even steer clear of the term “riders,” which are important features attached to annuities.
Acronyms like GMIB, GLIB and GLWB used to describe specific types of riders are best left to insurance skunkworks departments, said Seth Harris, an educational advisor to the Alliance.
“For consumers, those (acronyms) are not meaningful,” Harris said.
Better for advisors to talk to consumers about minimum income floors that won’t drop because of the guarantees, he said.
Lawyers drawing up annuity contracts that meet regulatory requirements have contributed to the impenetrable thicket used to describe annuities, so the industry isn’t entirely to blame for generating convoluted contracts.
But the sooner the industry can get away from jargon, the better.
Contrast Between Income Protected and Unprotected
A new survey of baby boomer and Generation X households, along with research conducted by the Alliance, finds that too many consumers fall short of protecting income.
The gulf between households with protected income compared with those who have no income protection is wide, the survey found.
- 48 percent of households ages 45-72 with investable assets of $75,000 to $2 million have no protected monthly income other than Social Security.
- Meanwhile, 88 percent of income-protected households say they are confident their retirement money will help them achieve their lifestyle goals.
- 73 percent of income-protected households said they do not worry about their retirement.
Many people know that saving for retirement is important, “but you may not have created a plan to turn your savings into a paycheck once you stop working,” said Lincoln Financial president and CEO Dennis R. Glass in a video on the Lincoln website announcing the launch of the Alliance.
As many as 80 percent of retirees don’t have a formal retirement income plan, yet those who do feel more confident about their lifestyle in retirement, he said.
Insurer members of the alliance include AIG, Allianz Life, AXA Equitable Life, Brighthouse Financial, Global Atlantic, Prudential, State Farm, Jackson National Life, Lincoln Financial, MassMutual, Nationwide, Pacific Life, Protective, TIAA and Transamerica.
Asset managers Capital Group, Franklin Templeton, Goldman Sachs Asset Management, Invesco, JP Morgan, Macquarie, Milliman, SSGA and T. Rowe Price also participate in the alliance.
InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].
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