The Time Is Ripe For Income Annuities To Take Off
By Thomas F. Streiff
The subject of using annuities for income continues to generate substantial interest in our industry. The problem so far has been that most of the interest has been at an intellectual level and not at an implementation level. This means that we all talk about it, agree its a good idea, develop programs and products, but few people are actually buying. Weve been operating in this zone for a few years.
I think its all about to change. The buyers are ready. The brokers are just about ready, and the product providers are finally providing real solutions. Heres my take on each of these constituencies.
The Buyers: After three years of a bear market, most retirees or near-retirees are looking for safety, stability and predictability. I see nostalgia for the predictable payouts of defined-benefit pension plans. Our parents generation enthusiastically accepted these fixed annuitization income strategies. Of course, they never called them fixed annuitization (they still dont). They called them pension distributions, lifetime income or guaranteed payouts.
Its clear that retirements of the future wont have much (or any) of these payouts. Therefore, theyll need to be structured for the retirees. Annuities are the only way to achieve lifetime-guaranteed payments results outside of the plan. This could become obvious to many retirees. What wont necessarily be obvious to most retirees is the how and the how much. Brokers will need to educate their clients.
The Brokers: This is probably the missing link in the annuitization retirement income chain. Again, most brokers intellectually accept that some part of a retirees distribution should come from annuitization, but executing such a strategy is almost unheard of. Why?
There are numerous issues. Probably the biggest of which is education. Some brokers are not as well equipped as they should be to have meaningful discussions with their clients on this issue. As an industry, we are in the process of developing better tools for the broker to use in determining whether a client can better pursue their retirement goals with annuitization and if so, how so.
When you look at the many asset allocation and stochastic modeling tools available for accumulation, you have to wonder why so little has been developed for distribution. With the focus on retirement distributions and the evolving nature of retirement plans, this is changing quickly.
