FEATURE ANNUITY BUYERS SHIFT, BRINGING AN INDUSTRY ALONG WITH THEM Still, the lack of interest in simpler annuities is a reflection of unwise planning, said Littell, who is also co-director of the college’s New York Life Center for Retirement Income. “The deferred income annuity product is a good way to reduce your risk as you are approaching retirement, versus just moving it to bonds to buy income at that point,” Littell said, adding that more consumers are buying annuities with qualified money. In Littell’s own case, he wanted the deferred income aspect of an annuity but not the date certain. The 63-year-old expects to retire in a few years and will likely work part time, but he’s not sure for how long. So, he joined the growing ranks of FIA owners — not only because of the flexibility of a withdrawal benefit rider. He is an educated consumer who looked at the contract details and liked what he saw. “The chances of the income beating a deferred income annuity were pretty good,” he said. “So, even if the market didn’t do well, I was going to end up at about the same place.” At the Center for Retirement Income, he makes certain financial and insurance advisors realize the value DIAs and FIAs with riders provide. But part of the challenge is drawing advisors out of their comfort zones. “My experience with advisors is that many of them have a product line that they’re comfortable with, and they are not equally comfortable with all the different options,” Littell said. A particular area of discomfort for some advisors is the perception of inflexibility, the opposite of what attracted Littell to his annuity. “The deferred annuity offers the promise to annuitize as specified with the mortality table, with some kind of guaranteed interest,” he said. “Plus, if you don’t like the price when you’re going to annuitize, you just do a 1035 exchange. So it does lock you in to an opportunity, but it doesn’t lock you in if you can get a better rate somewhere else.” He also preaches the value of variable annuities, having bought a low-cost one himself as a tax strategy when he received a small inheritance. He’s pretty happy with the terms of the contract, so he expects to do with his annuity what a lot of consumers usually do not — actually annuitize. 28
InsuranceNewsNet Magazine » June 2017
The retirement market will grow for decades, as will the prospect for annuities.
2050: 12,000 per day
2021: 11,000 per day
2035: 78 million
2025: 66 million
2025: $25 trillion
10,000 per day
49.5 million
$13 trillion
2015: Americans Reaching Age 65
2015: Number of Retirees
2015: Retirement Income Market
Source: LIMRA Secure Retirement Institute analysis of 2013 Survey of Consumer Finance, Federal Reserve Board, 2014. The retirement income market size estimate reflects consumers aged 25 or over, and households with assets between $50K and $4.9 million.
“Now when it comes time to annuitize from that product, the payout rate is substantially higher than the current market rate because of the promises in that contract,” he said. “I can actually add money to that contract and still get the same promise.” And that ought to make the insurance company a little nervous, because Littell’s father lived to 104. Longevity is a key reason why Littell and many other experts argue that failing to advise clients on the value of annuities is not protecting consumers’ best interests. In fact, ever-expanding longevity might even undermine the argument against locking in an annuity in a low-interestrate environment. Although Littell does admit that the low-interest-rate argument sounds compelling. “That’s certainly the challenge,” he said. “But I think that sometimes it’s overblown. Mortality tables will probably continue to extend. Annuity costs may not ever be cheaper. It’s quite a promise for an insurance company to guarantee income for life. They might get more gun-shy over time.” Littell said the greater insurer exposure with longevity reminds him of the longterm care insurance market, which is still
grappling with policy pricing and sustaining contracts. Littell’s father got considerable value out of an annuity he bought in his 80s, an age that raises a few eyebrows among advisors and regulators considering suitability and fiduciary duty. But few could argue that it was a bad deal if a client lives to be 104. “He was worried he was spending down his money in his 80s,” Littell said. “He had plenty of money, but the whole idea of spending down freaked him out. He was in a retirement home and he wanted to make sure they didn’t kick him out. So, he bought an annuity to pay his retirement home bill, which let him sleep at night. Every year or so he announced that he had to live a little longer to get his money’s worth. So he did — he got his money’s worth.”
Safety and Security First
Now that Littell is in the retirement-planning frame of mind himself, he finds himself tracing his father’s careful footsteps. “I’ve been buying income,” Littell said. “Certainly not anywhere near all of my assets, but I want the security that there is income for life. That, and it allows me to take more risks with my other portfolio.” And there is plenty to be said for the peace of mind his father sought, according to data.