ANNUITY
Advisors can Net Big Business from $21 Trillion Protection Gap
which represents “a continued decline from the high of 65 percent measured in 2009,” the Washington researchers said in their 2013 annual Retirement Confidence Survey. In the other study, the latest COUNTRY By Linda Koco Financial Security Index survey, a third of nnuities are in a worse position Americans said they think a middle-income than life insurance when it comes family can save for a secure retirement. to consumer attitudes toward That sounds somewhat promising. the products, even as the public’s need Perhaps they have access to the products for income protection grows even larger, and resources they think they will need to according to recent studies. reach that goal. A Conning report pointed out that What actually happens could be somemany consumer surveys have detected a thing much different, however. Only 28 significant disconnect between what conpercent of those aged 50 to 64 – and thus sumers say about needing annuity and life nearest to retirement – told the researchers products and what consumers actually do that they think a secure retirement is posabout buying those products. sible to achieve. That’s even though 59 perConsumers will “claim that they know Fresh data cent of this age group said they had started they need more life insurance coverage, It’s not just Conning that is pointing out saving for retirement before age 40. or longevity protection in retirement,” the the disconnect that exists between what This raises some perplexing questions. Hartford researchers wrote in Conning’s consumers are saying about their financial Did these boomers save in products that 2013 Life-Annuity Consumer Markets needs and what they are doing. weren’t suitable for their situations? Did Annual Report. However, many fail to Recently, two more studies came out they have a save-and-spend lifestyle, untake steps to invest in annuities or to buy with fresh data on the extent of the fail- dermining their retirement goals? Did they additional life insurance (or individual life ure-to-act problem. The new studies iden- see the value in other options but never insurance in the first place). tify the problem as it relates to saving for followed through? Did anyone teach them In 2006, for example, the “protection gap” retirement, not specifically to failure to about diversification? Did they consult an across all demographic segments was $11.3 buy annuities or life insurance. But the insurance or financial specialist? trillion, according to Conning estimates. findings resonate in annuity and life cirAnother surprising finding from the “Protection gap” is the term Conning uses cles since both types of products are often COUNTRY Financial survey is that nearly to refer to the capital that would be needed purchased in whole or in part with retire- half (42 percent) of 18- to 29-year-olds said to replace a portion of the income of the ment in mind. they have not yet started saving for retireprimary householder for the period prior In one study, from Employee Benefit ment. This is 20 points higher than Amerto normal retirement. Research Institute (EBRI) and icans overall, and the highest of any age ///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// This estimated gap more///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// than Mathew Greenwald and Asso- group in the survey. Talk about disconnect. DREAMING OF A ///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// doubled to $22.8 trillion in///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// 2012, SECURE RETIREMENT? ciates (MGA), nearly 70 percent ///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// the report said. For 2013, the esof American workers said they Why is this happening? ///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// ///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// HOPEFUL A third of timate is slightly smaller, at///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// $21.2 do see the need to save for re- In recent years, the financial stresses of the working Americans think ///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// trillion, but it “still represents a a middle-income family tirement, but the workers also post-recession era are often cited as a key ///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// large increase over the gap///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// that can save for a secure reported amazingly low actual reason for Americans not saving more or ///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// existed before the financial///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// crisis savings levels. not taking steps to act on acknowledged retirement. ///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// ///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// and recession in 2008-2009, ” the BUT Only 28 percent of For instance, more than 50 financial needs. ///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// ///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// report said. In the COUNTRY Financial survey, those aged 50 to 64, and percent reported having less than ///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// ///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// The problem is not new, but thus closest to retirement, $25,000 in total household sav- for example, 38 percent of baby boomers ///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// ///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// in some markets – such as the think a secure retirement is ings and investments (excluding told researchers that they had to delay re///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// possible to achieve. ///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// retirement market – it appears value of the primary home or any tirement by at least two years due to the ///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// Source: The COUNTRY Financial to be growing, according///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// to a Security defined benefit plans). And only economic downturn. Other surveys point Index survey, March 2013 ///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// ///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// few studies. 57 percent said they are saving, to rising health care expenses, long-term
S ome studies confirm that consumers know they need what annuities do, but still do not want to buy them.
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By implication, failure to act could make things “worse” for consumers who may end up not owning the very products that could help them meet the needs they say they have. It also could make things “worse” for the insurance and financial services industry in the sense that it contributes to lower market penetration than would otherwise be the case. And it could be “worse” for everyone if increasing numbers of citizens lack the financial essentials that help make the economy tick. That’s not a pretty picture but the situation is not hopeless. Various experts say insurance producers and carriers can help reverse the direction, from disconnect to connect. First, the scope of the problem.
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