Annuities Solve Two Consumer Wealth Challenges: Analyst

A focus on generating income in retirement and planning for the risk of living too long are among the trends that will define the future of consumer wealth, a consultant who tracks the financial advisor market said last week.

Annuities are designed to deliver income in retirement and solving for longevity risk by generating income a policyholder can’t outlive solve both challenges.

Consumers used to earning a paycheck during their working lives are going to start asking about the kinds of products that can deliver regular income, said Chip Roame, managing director of Tiburon Strategic Advisors.

“Next, I think you’ll see a greater focus on longevity planning,” Roame said in a client presentation last week.

As longevity averages creep up for many – but not all – demographic groups, and as outlier households live past age 100, people are going to ask themselves what they can do to keep income flowing for 30, or even 40 years.

“If you are the single household that lives to (age) 95, the average doesn’t matter much to you, you’re out of money for eight years,” Roame said. “We need more products for that – that’s longevity planning.”

Over the past 10 years, annuity sales have fluctuated between $220 billion and $265 billion, according to LIMRA Secure Retirement Institute.

A Quantitative Look Ahead

The 126 million households in the U.S. in 2017 held investable assets estimated at $47.8 trillion, a sum expected to rise to $77.8 trillion by 2022, Roame said.

In addition, those 126 million households held $24.3 trillion in retirement plan assets, a sum expect to grow to $34.3 trillion by 2022, Roame said.

By 2021, the U.S. is expected to have 334 million consumers, an increase from the 326 million living in the country now.

Other predictions bearing on consumer wealth: the number of consumers and consumer households will continue to grow, savings rates will edge up slightly, and people will delay retirement, Roame said.

Baby boomers will liquidate trillions worth of assets as they sell their homes and downsize or sell their businesses.

The savings rates of baby boomers isn’t what’s going to save them, it’s the liquidation of assets that have grown in value, in many cases exponentially so.

“Baby boomers have picked up a lot of housing appreciation, not because they did any savings per se, but because the house has appreciated in value,” Roame said.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected]