With more than 7,800 people turning 65 everyday, an increasing number of retirees are more concerned about the reality of outliving their finances than ever before. Our economy is still in the grips of a devastating recession, and consumers have yet to recover the losses they incurred over the past two and a half years. As a result, many retirees are choosing to postpone their retirement—and many of those who are already enjoying their golden years have been forced back into a very discriminating job market.
However, despite the turmoil in the market, consumers are still confident about one type of retirement investment in particular: annuities. In fact, nearly eight in 10 annuity owners say that annuities make them feel more secure in times of financial uncertainty, according to a study by The Committee of Annuity Insurers, the Gallup Organization and Mathew Greenwald & Associates.
Safe and sound
Based on the study, almost 80 percent of annuity owners say that annuities are still secure and safe and are an integral part of safe retirement planning—especially in these tough financial times.
If your clients are hesitant to consider annuities, take time to educate them about the incredible stability of these investments. The reasons here are obvious. First of all, annuities are only offered by insurance companies—not banks or brokerage firms. And unlike the volatility in the latter, the former has remained stable and consistent throughout this recession and even during the Great Depression. This historical record of stability is based on the fact that insurance companies maintain a low risk tolerance and engage primarily in conservative investment options.
In addition, every annuity product offered by an insurance company must be approved by that state’s Department of Insurance and the Insurance Commissioner. Because annuities are retirement vehicles and designed for the senior market, each annuity transaction must pass rigorous suitability requirements. This provides additional protection for both the insurer and consumer. Almost 90 percent of those surveyed said they saw investment options and insurance guarantees as a key benefit of annuity products.
Reliable retirement income
According to this study, a whopping 86 percent of annuity owners believe that annuities are an effective way to save for retirement and 89 percent see their annuity purchase as a safe investment option. Less than three percent of annuities are ever annuitized, and more than 75 percent of annuity owners today say that they intend to use their annuities for retirement income. With a guaranteed minimum rate of interest, and guaranteed lifetime income riders, these investments are particularly appealing to clients saving for retirement or making up lost retirement dollars.
Annuities also offer protection from other risk elements besides market volatility. Some of the additional benefits that annuity contract holders enjoy are:
- Income tax deferral until withdrawal
- Liquidity through penalty-free withdrawals
- Protection from creditors (in most states)
- Control of investment strategies
- Potential for competitive returns with no risk
- Probate-free transfers at death
- The right to convert to a guaranteed lifetime income
Plenty of other uses
There are other features that make annuities desirable for retirement planning as well. Based on the survey, 83 percent of annuity owners intend to use their annuity to supplement their retirement income. You can help clients accomplish this goal through features like annuitization and guaranteed income withdrawal riders. Since 50 percent of the people turning 65 today are expected to live well into their 90s, annuity owners see the future income as a great way to maintain their sense of independence as cost of living increases. Today’s baby boomers are used to being self-sufficient, and most of them are taking steps to avoid becoming a financial or emotional burden on their children.
There are several different types of annuities, and nearly all of them offer minimum guarantees and safe investment options. These are not get-rich quick investments. But in today’s economic climate, slow and steady wins the race. And seniors today are seeing annuities as a great way to get to the finish line.