One of the greatest concerns that retirees have right now is that they will outlive their savings in retirement. Annuities are an excellent tool to help ensure you receive lifetime income that will alleviate longevity risk. But in the grand scheme of things, not that many people actually purchase annuities. This might be because an annuity isn’t the right fit for their savings and goals, but it is often the case that people are misinformed or uniformed about everything that comes along with annuities and the benefits that they offer. In a CNBC poll, they asked “What is preventing you from getting an annuity?”
Nearly 6,000 people chose from five different possible responses to what is keeping them from buying an annuity. I think one of the responses could have been that nothing is keeping them from the purchase because they already own one, but I guess those people just didn’t vote. Living comfortably in retirement is no longer a certain thing, even for those who have saved towards the magic number they thought they would need in retirement. Your 401k and IRA are rarely enough to finance the retirement that Americans have been working towards. Between the “Great Recession” and the so-called “Lost Decade” in the stock market, annuities are getting a renewed life.
Past annuities were often complex and expensive, but that really is no longer the case with most annuity products. The fact that they pay a monthly return, whether variable, fixed, or indexed, for as long as you live makes annuities a great way to combat this longevity risk worry. The government has made it easier for 401k plans to offer annuities and many plan sponsors are offering 401k annuities now. Despite the great benefits of annuities, many people are still disinterested in buying them. So CNBC asked why in this study and the results are interesting.
Six percent of respondents said that they just don’t have the money to invest in an annuity. This may be the case because of the dismally low savings of many Americans, but many annuities have a much smaller initial investment than people assume. Ten percent said that they simply have no interest in annuity products. Fourteen percent don’t understand how annuities work. This is a big opportunity for insurance companies to inform Americans of the great benefits that their annuity products have to offer. The majority of respondents though, 70% overall, said that either the return on investment was too low (32%) or the costs were too high (38%). Insurance companies really need to focus on the education of consumers because there is too much misinformation out there. Investors are unaware of the benefits they are getting for their cost and risk transfer and often don’t compare annuities to equal products.
Written by Rachel Summit
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