The long tomorrow

The knee-jerk aversion to annuities by consumers is referred to by those in the industry as the annuity puzzle. Many industry watchers specialists have for many years come to the conclusion that the vast majority of Americans should annuitize a much larger portion of their accumulated assets than they do. Income annuities are a perfect mechanism to ward off longevity risk yet the general public (some contend due to a lack of understanding) have a strong distaste for them. Individuals see them as a gamble, a bet with insurance companies and they are not keen on purchasing nor having them pitched to them.

Peter Gourley, Vice President at Ruark Companies, an actuarial and consulting company based in Hartford, Conn., feels that it is not much of a puzzle at all. "I think that the annuity forms that are available, if you want the most bang for your buck, you have to give up control of your money and in particular, the highest income could get would be if you bought a life only annuity but the deal there is, if you die the day after you bought it, that's it. You get nothing and your heirs get nothing and that is a big obstacle for people; the decision to give up that control."

Another theory as why the annuity puzzle exists is that many people in the general public feel that annuities are simply too expensive. Some years ago, all annuities could be considered fairly expensive. And while that is not the case anymore, the general public just has not been able to shake the misconception. MassMutual's Michalowski feels that the transactional manner in which annuities were pitched and sold to consumers over the years is having reverberations today that propel the annuity puzzle. "When people are given the context of what annuities can do for their individual goals and needs that can change the conversation. Once people understand the products they can see the tradeoffs and impacts and this is where we have found that indentifying the need that the annuity is going to help solve has really changed perceptions."

Simbro of Northwestern Mutual feels that the annuity puzzle is rapidly being deconstructed "We're seeing a flight to security and in fact, our clients have an acute awareness of the need to protect their retirement nest-eggs throughout retirement. That's reflected in our double-digit sales of annuities.

Although there is a disconnect between how actuaries, industry professionals and the "average Joe" think about retirement, that does not mean that gap cannot be closed. Retirees want to have a leisurely retirement wherein they are able to enjoy the same lifestyle they had in years passed while leaving their children unburdened. Contemporary annuities, when combined with a comprehensive retirement package are able to do just that; stretch the wealth accumulated over one's lifetime so as not to outlive one's money even if living a longer-than-expected life.  Industry experts agree that there is a dearth of basic financial literacy among the general public that will undoubtedly exacerbate the effects of longevity risk over the years to come, most notably when the hordes of Baby Boomers retire. What is not totally agreed upon is what can and should be done to stop it.

The industry has been shouting about the devastating and impending effects of longevity risk for years with their voices reaching a shriek-like pitch as the first Baby Boomers begin to retire. For the most part, the warnings have not sunk into the minds of the general public. We are operating in a perpetual state of unpreparedness as four out of five American workers are saving less than 10 percent of their income for retirement, according to LIMRA. Maybe a strong public service campaign is needed, or maybe like our lessons gleaned from the credit crisis we need to feel the devastating effects of our current ways. Whatever it is, American's need to understand the importance of not living longer than their money.