With 58% of retirement savers concerned about outliving their assets, advisors, and clients are giving annuities a fresh look.
Financial advisors are fielding more concerns from clients who worry about outliving their savings. A June 2023 Cerulli Associates report found that Social Security is the primary income source for 54% of those surveyed, and 58% of retirement savers – including retirees – fret that their assets will run out and leave them struggling1.
These concerns have sparked a renewed interest in annuities to provide additional income for part of a client's retirement portfolio.
The need for additional guaranteed income protection is increasing for several reasons. People live longer, and fewer have a company pension plan as protection. Stock and fixed-income markets have been volatile over the past several years. Questions remain about the solvency of Social Security in the coming years, as the main trust fund2 will pay only 77% of its scheduled benefits by 2033 if legislators take no action.
Annuities can solve this problem for many retirement savers, but financial advisors find their clients lack interest in these products, even as they ask for safer portfolios and income protection.
For advisors, helping clients understand the annuities puzzle and explaining how changes to these investment products are making them more attractive for those ready to retire is critical.
The Annuity Puzzle
There are multiple reasons why clients remain skeptical about annuities, including news reports and state insurance department alerts about deceptive sales practices when purchasing annuities. High fees and pricey surrender charges also may act as a turn-off. Finally, many annuities are opaque and complicated, making it difficult for the average investor to know what they are buying.
In some cases, even wealthier clients might still need to learn annuities exist.
A 2023 paper3 by Karolos Arapakis and Gal Wettstein, economists at the Center for Retirement Research at Boston College, suggests advisors tend to refrain from recommending annuities to clients. The researchers found only about 10% of older Americans own commercial annuities. Similarly, the Federal Reserve's 2023 Survey of Consumer Finances4 shows fewer than 5% of American families owned an annuity in 2022.
