Will rising retirement needs spark an annuity boom?

As Americans need an ever-increasing amount of savings to comfortably retire, one financial professional believes it could drive growth in the annuities market.

“When you annuitize, you’re creating income for life," said Robert Powell, vice president of wealth management sales, iPipeline. "I think, quite frankly, that’s probably what most retirees really want. They want that certainty, and trying to manage a plan or manage a savings account to support that is not the easiest thing. I think that concept absolutely drives the need for annuities.”

Research suggests the average American believes they need nearly $1.5 million in savings to comfortably retire. Meanwhile, many are inadequately prepared for retirement even as longer lifespans mean many also run the risk of outliving their savings.

Powell pointed out that working Americans are “dealing with multiple moving targets” as they try to plan retirement, weighing income for current needs while also trying to project how much of that they will need at the end of the working career.

“You have two moving objects that you’re trying to reconcile and try to bridge the gap between those things with enough savings to be able to last the rest of your life. So, there’s a mountain of variables in there,” he said.

In his view, this makes the role of financial advisors even more crucial to help clients explore their options and annuity products that could help them bridge the gap between expectation and reality when it comes to retirement savings.

“You just need either a great financial advisor or great tools — or, hopefully, both — to help center you and give you guidance around how to rationalize those two things… I think, at a minimum, helping people fundamentally understand what an annuity does in terms of really delivering that lifetime income is absolutely important,” Powell said.

Annuities gaining traction

Powell suggested consumers are becoming more aware of annuities and more interested in exploring them as financial options.

“We saw an annuity spike a couple of years back when interest rates shifted and then the market was volatile," he said. "So, you had interest rate implications that really drove annuities or drove a spike in annuities. I think, for the first time, we started to see end consumers hearing more about annuities and asking about annuities."

In his view, this “consumer-demand approach really ends up driving a market,” and a similar trend could happen as retirement savings needs grow.

“I think we got a little taste of that in the annuity sectors a couple of years back when clients started hearing more about annuities and how they could deliver specific interest rates," Powell said. "If end consumers are getting a handle around an annuity and they are a specific annuity class anyway, and it’s appealing to them, advisors are going to have to support that."

Education lacking

Despite potential interest in annuities, Powell also suggested many people simply don’t understand what an annuity actually is and how it could help them in retirement.

“I think, fundamentally, there’s a pretty big lack of education for that end consumer," he said. "They hear things like 401(k) and IRA and annuity, and they start recognizing tools and names or means to support retirement or to get them there without really understanding what each of those things do for them.”

He urged advisors to start by helping clients “fundamentally understand what the core intent of an annuity is and how it will specifically apply to them.”

“Once you have that fundamental building block with the client or helping them to understand an annuity at its core, then you can talk about which class of annuities is appropriate for them and why. It’s almost like a two-step process in a way,” Powell said.

Making annuities easier

While acknowledging that annuities can seem complex to both consumers and agents, Powell said AI can be leveraged to help smooth the process from both sides.

“Leveraging AI to help expedite that and smooth that over and make that easier for advisors to do is absolutely important to the intimidation factor, making it simpler for them because you want to limit that barrier to entry,” he said.

He noted that while annuities can be complex on the front end, “they’re very simple on the back end,” and that’s all end consumers really want to know.

“The client just wants to know, ‘This is the right choice and the right solution for me,’" Powell said. "Balancing those two things so the client gets exactly what they need, that’s really where we’ve spent a lot of time focusing and how we’re leveraging AI to get them there faster."

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