NQ Annuity Owners Are Concerned About Retirement

How will NQ annuity owners use their annuity savings? Seventy-eight percent intend to use the money for retirement income. In addition, eight in 10 say they will use the savings as a financial cushion in case they or their spouse live well beyond life expectancy (83%) or to avoid being a financial burden on their children (81%).

Consistent with concerns about the costs of catastrophic illnesses and nursing home care, 70% say an important reason they purchased an annuity was to cover the potential expense of unpredictable events such as a catastrophic illness or the need for nursing home care.

Most view tax deferral as an incentive to save. Nine in 10 agree that keeping the current tax treatment of annuities is a good way to encourage long-term savings (91%) and that annuities are an effective way to save for retirement (90%). Over nine in 10 (92%) report they are trying not to withdraw money from their annuities before retiring because they would have to pay tax on the withdrawn amount; this is up 4% since the 2001 survey.

Expectations do differ by employment status. Retired owners generally view Social Security and money their employers put into a retirement plan for them as more important sources of income in retirement than owners who have not yet retired. Respectively, 58% and 47% of retired owners cite these as major sources of expected retirement income, compared to 34% and 43% of non-retired owners.

In contrast, those not yet retired generally view themselves as more responsible for their own retirement security, and thus are more likely to cite their own personal savings such as annuities and other investments (39% non-retired vs. 26% retired) or money they put into a retirement plan at work (41% non-retired vs. 21% retired) as major sources of expected retirement income.

What conclusions can be drawn from this data? First, the survey shows that NQ annuity owners are pleased that they purchased an annuity. They generally have very positive views of their annuities and the role their annuity has played in helping them achieve a comfortable retirement.

Second, and equally important, the findings demonstrate that annuities are a retirement policy success story. In a nutshell, middle Americans buy annuities to help fund their retirement and they use them for that purpose.

Unfortunately, there are not enough successes in this arena, as far too many individuals are not preparing adequately for retirement. Officials in Washington constantly are looking for ways to address this problem. Looking at the survey, it seems clear that one product that works for middle Americans is a nonqualified annuity. Individuals buy the policies seeking financial security in retirement, and they use their policies to provide that security.

As a result, policymakers should be focusing more on how to broaden the use of annuities beyond the many individuals who already have discovered the extraordinary value of this product.