Popularity of Guaranteed Lifetime Income Options Spike with Demographic Shift

SAN DIEGO, CA – 8 Aug, 2016 – People want a nice, long life—until they have to pay for it.

Longer lifespans due to medical innovation means the need for income in retirement that lasts as long as the individual in question. Since America’s savings rate generally hovers between zero and a little over 5 percent in any given year (and sometimes experiences a negative saving rate), it’s an increasingly tall order.

Compounding the problem is an average retirement account balance of about $100,000, a fraction of the million-dollar minimum most financial professionals say is needed to achieve an affordable quality of life in later years.

So it’s little wonder the concept of “guaranteed lifetime income options”—most often involving variable, fixed or fixed index annuities (FIA)—strike a chord with consumers when raised by financial advisors and insurance agents. Having a stream of income in retirement that’s protected from market losses and global shocks, income that in certain cases increases as time goes on, is important for financial longevity and ensuring retirees don’t outlive their financial resources, experts say.

Demographics are driving demand, which is expected to remain high for some time. According to the Insured Retirement Institute, a lobbying and advocacy organization for the retirement income industry and financial services companies, there are more than 74 million Americans aged 55 and older. However:

• Only 27 percent of baby boomers are confident their savings will last throughout retirement, creating a large pool of consumers who can benefit from lifetime income strategies.

• The aforementioned fixed indexed annuities are experiencing strong demand—a 50 percent increase since 2011—specifically on the attractiveness of their guaranteed lifetime income benefits.

• Demand for FIAs should continue to experience growth with the introduction of new products.

“Seventy-eight percent of consumers consider other sources of guaranteed lifetime income in addition to Social Security to be very valuable,” notes Washington, D.C.-based research firm Greenwald and Associates. However, despite the need and recent spikes in popularity, guaranteed lifetime income options have yet to gain widespread acceptance among the general public.

Many pre-retirees and retirees are not familiar with these financial products, according to a recent Greenwald survey, and those that are have a cursory knowledge of how they work, at best. For example, only 15 percent know that annual payments from immediate annuities are higher than payments from the highest rated bonds. Also, only 32 percent know that immediate annuities generally cost less for those who purchase them later in life.

In addition, many consumers avoid annuities for fear of not having access to their money should they need it. Fully 90 percent of those without annuities that offer guaranteed lifetime income options identify “access to money” as a reason for not owning one.

Yet part of the appeal with guaranteed lifetime income options is their help in reducing what’s known as sequence-of-return risk, or the risk of retiring in a market downturn, a situation in which most financial professionals agree can adversely affect retirement savings. Not only are market returns negatively impacted, but the chances of recovery may be lessened due to the withdrawal of funds to pay for day-to-day living expenses.

“Pre-retirees are concerned about timing the market right in order to retire, something that is very difficult to do,” says Glenn LaBar, a financial professional with San Diego-based WealthBridge Insurance Solutions, which offers information on retirement income strategies.

Unfortunately, adds LaBar, a chapter president of the non-profit American Financial Education Alliance (AFEA) in Carlsbad, California, an organization “that exists to provide a forum where people of all walks of life can gain information, education and experience about managing and understanding their finances,” 80 percent of pre-retirees at or near age 65 are still heavily invested in the market.

“There’s hope and then there’s actuality. They can hope the market favors them when they retire, or they can control a lump sum of retirement money and take advantage of automatic step-up provisions in their account balances. With a product like a fixed index annuity, consumers can pay a premium in exchange for income payouts for life, guaranteed by a contract with an insurance company.”

Glenn LaBar is an insurance professional licensed in the state of California, license number 0C80747.

For more information, please visit http://www.wealthbridgesolutions.com

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