With 2011 in the rear-view mirror, what can the annuity industry expect in 2012? It's pretty safe to assume that the economic roller coaster we experienced last year will continue, and that will no doubt pose challenges for financial professionals who sell annuities. However, the high level of economic uncertainty that flows into 2012 also provides ample opportunity to communicate the true value of annuities and their role in a well-rounded retirement portfolio. With that in mind, here are five predictions for what our industry can expect in the coming year.
1. Continued low interest rate environment. It's likely that the historically low interest rates of 2011 didn't inspire many people to invest in "safe" products that wereas of the end of Decemberyielding just over 1 percent or less. It's possible that some of that money earmarked for guaranteed financial products could have gone into other vehicles that could potentially provide higher returns. But that didn't necessarily happen, as the annuity industry experienced what will likely be a record year. So why did people stick with annuities?
It seems that people are finally starting to understand that saving for retirement isn't just about making moneyit's also about not losing the money you already have saved. If 2011 taught us anything, it's that we can't predict how the economy will perform and how factors like a soft economy will affect interest rates. Our industry has done a better job of communicating this fact of late, and will need to continue this work in 2012 as it appears interest rates won't get any better, at least in the short term. Despite this low interest rate environment, we believe annuity products remain an attractive option for consumers looking to protect a portion of their retirement savings.
2. Continued market volatility. This goes hand-in-hand with the low-interest rate environment and was something that simply couldn't be ignored in 2011. In today's media-driven society, market conditions are largely dictated by what people read in the news. Last year, there certainly weren't a lot of positive headlines. Between the debt crises in the United States and Europe, minimal job growth and fears of a double-dip recession, domestic and global economic news left the average investor confused at best. The danger with that scenario is that people often don't know what to believe. Without the guidance of a trusted financial professional, many may be content to let their money sit on the sidelines.
It's likely that the type of market volatility we experienced last year will continue in 2012. Again, this can actually be more of a positive than a negative for the annuity industry. Our clients will most certainly see troubling news headlines throughout 2012, but with a proper understanding about the benefits of annuities, they don't need to get caught up in the media hype. More education about our products in 2012 will support clients so they aren't chasing returns when the market is up or panicking when things are down.
3. November elections will spark more retirement conversations. Given the aforementioned economic news of 2011, people will make their voices heard in record numbers this year about a variety of issues, retirement included. What does this mean for the annuity industry? Only time will tell, but it's safe to assume that the retirement landscape will undergo some changes as a result, which may add to the uncertainty that many Americans may already be feeling.
As previously noted, this era of uncertainty can be an effective environment for financial professionals to champion the benefits of guarantees with retirement income. Whatever happens with the November presidential elections, retirement issues including the future of Social Security, defined benefit plans and taxes to name a few, will be a big part of the conversation. Financial professionals need to be prepared to understand the changing political and economic landscape and communicate how annuities can play an important role no matter the election's outcome.
