A recent survey taken on behalf of the Indexed Annuity Leadership Council (IALC) asked more than 6,800 people with a wide range of wealth about retirement preparedness and annuity products. Insurance News Net’s Linda Koco summarized the study results in her article “About 1 In 10 ‘Expect’ To Rely On Annuities In Retirement.”1 Nine percent of the Americans surveyed said that they “expect to be able to rely” on annuity income as part of their retirement income.. Nearly half of those surveyed have an interest in the features offered by annuity products, but 26% don’t have any money saved yet for retirement and 12% don’t know where they will receive their retirement income from. This indicates they may need more information about saving for retirement, and creating a nest egg and a supplementary income source to fuel their retirement.
In order by source, people expect to receive retirement income from Social Security, personal savings, a 401(k) plan, a pension and personal investments. Although the percentage of people who plan to receive income from annuity products is still small relative to these other sources, people are more likely to expect annuity income the older they get. Around one-quarter of those 70 and older expect income from an annuity while only 2% of 18-34 year olds expect annuity income. Younger people have their focus elsewhere and it may be difficult for them to project that far into the future whether or not they will need annuity income. There could also be a lack of awareness about annuity products in the younger generations. This could be another indication of a need for increased financial literacy.
The study asked participants if they were interested in the benefits offered by annuities without actually using the word “annuity.” In total, 43% said that they were somewhat or very interested in a “retirement savings account” that allowed a set monthly premium payment, guaranteed payouts throughout retirement* without exposure to the stock market, and guarantees* not to lose your money. The youngest participants actually had the most interest in these features. Millennials aged 18-34 had the highest interest of 52%, while the amount of interest went down with each aging generation. This may be a result of their financial perspective, as forty-three percent of them said that they are somewhat or very (financially) conservative.
The IALC said that fixed indexed annuities would likely appeal to Millennials because of their guarantee* not to lose money and other conservative benefits, while offering a potential for growth over the guaranteed interest rate. Even though their desires appear to match up with the features of annuities, only 2% of Millennials expect to receive retirement income from the products. For starters, this might be because this generation is struggling to save for their retirement at all. There is no retirement savings reported for 37% of Millennials and a quarter of them are in debt. Thirty-three percent of those with savings have less than $25,000 saved. While Millennials still have time to save, it’s important that they understand the impact of saving early on their retirement financial stability. The IALC is working to inform this group not only about annuities, but about general financial literacy. They are pushing for the rest of the insurance and annuity industry to do the same. By using online tools such as retirement calculators, they could become better prepared for retirement. A balanced retirement approach can help ensure that individuals won’t run short of money in retirement.
Written by Rachel Summit
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*Guarantees of annuities rely on the financial strength and claims-paying ability of the insurance company that issues them. Lifetime payouts may be a benefit of the base annuity contract, or may be offered through the additional purchase of a lifetime benefit rider.
1 Koco, Linda. “About 1 In 10 ‘Expect’ To Rely On Annuities In Retirement.” Insurance News Net, June 22, 2015. https://insurancenewsnet.com/innarticle/2015/06/22/about-1-in-10-expect-to-rely-on-annuities-in-retirement.html
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