… if only they knew what they were
July 23, 2014 – HARTFORD, Conn.–According to a survey by The Phoenix Companies, Inc. (NYSE:PNX), 71 percent of Americans said they would consider buying an annuity to meet a variety of needs, including predictable monthly income, leaving an inheritance for their heirs, assistance with chronic care expenses and asset accumulation opportunities. However, more than half (53 percent) of the participants said they were not familiar with annuities, and only 20 percent are actually planning to use an annuity to convert their retirement savings into an income stream. The survey was conducted by phone within the United States by ORC International on behalf of Phoenix during June 26 through 29, 2014 among 1,004 adults aged 18 and older.
“This survey confirmed statistically what we have heard anecdotally for years — that the majority of Americans don’t have a deep understanding of today’s annuities,” said Mark Fitzgerald, national sales manager for Saybrus Partners, Phoenix’s distribution subsidiary. “They don’t necessarily understand the basic income protection traditionally offered on all annuities, and they also are not aware of the range of benefits available on newer products, such as accumulation and chronic care features.
“At the same time, when these newer types of features are described, a lot of people say they would consider buying the product,” Mr. Fitzgerald said. “Annuities available today are ‘not your grandfather’s annuity.’”
When Americans were asked which benefits they would consider purchasing an annuity for, 71 percent selected at least one benefit. About half (49 percent) indicated they would purchase one to secure a predictable source of monthly income for retirement. Forty-one percent said they would purchase an annuity to leave money for their spouse or heirs. More than a third (36 percent) said they would purchase an annuity to provide money for chronic healthcare expenses, while 31 percent indicated they would purchase one for asset accumulation opportunities. Twenty-five percent said they would not consider purchasing an annuity for any reason.
Regardless of this interest in the various benefits annuities offer, the survey showed that most Americans would not describe themselves as familiar with the product. Fifty-three percent of participants indicated they were not familiar with annuities, (19 percent were “not very familiar” and 34 percent were “not at all familiar”). Thirty-two percent consider themselves “somewhat familiar,” and only 13 percent of participants said they were “very familiar.”
Converting Retirement Savings into an Income Stream
Conventional wisdom says that creating a dependable stream of income in retirement is a major challenge for pre-retirees and retirees. Surprisingly, then, 69 percent of the non-retired participants in Phoenix’s survey said they were confident they will be able to convert retirement savings into a predictable source of monthly income (28 percent said they were “very confident” and 40 percent said they were “somewhat confident”).
“Despite this high confidence level, many Americans are not on the right track with creating a predictable stream of income in retirement,” said Mr. Fitzgerald.
When asked how they were planning to convert (or are currently converting) their retirement savings into an income stream, most participants identified several methods that carry risks and are often inadequate:
More than half (55 percent) said that they plan to use their savings as a supplement to their pension and/or Social Security only as needed. “When people say their savings will serve only as a supplement to a pension or Social Security, I consider it a signal that their savings will not be a significant source of income,” Mr. Fitzgerald said. “This is cause for concern because increasingly fewer people are covered by pensions and, in many cases, retirees need a lot more than the average monthly Social Security retirement benefit of $1,294.”
Another 50 percent plan to withdraw a set amount each month or year from an IRA or employer-sponsored retirement account, such as a 401(k). “There is a big risk in using either IRAs and 401(k)s as a direct source of income, as they are subject to market volatility and are not guaranteed,” said Mr. Fitzgerald. “Many of today’s retirees and pre-retirees already lost a large portion of their retirement portfolio in the last recession, and they need to avoid putting themselves further at risk by depending on assets that are susceptible to market fluctuations. Individuals close to retirement should seek the counsel of a financial professional to find products with guarantees for income, chronic care coverage, and other benefits that meet their particular needs.”
Only 20 percent are planning to use an annuity. “This is a low number, considering that annuities are a primary vehicle for producing a guaranteed income stream. It’s also much lower than the 49 percent who said they would consider purchasing an annuity to secure a predictable source of monthly retirement income. While it is encouraging that people are willing to consider annuities, they clearly need some help translating intentions into concrete plans,” Mr. Fitzgerald said.
Getting Advice When Planning for Retirement
Despite the need for financial advice, only 36 percent of participants who have not yet retired said they either currently work with a financial professional to help plan for retirement or have done so in the past. And, those who have worked with a financial professional have more confidence in their prospects for a financially secure retirement.
The vast majority (85 percent) of non-retired participants who have ever worked with a financial professional said they were confident they would be able to convert their retirement savings into a predictable source of monthly income. Only 62 percent of those not retired who have not worked with a financial professional expressed the same confidence. The survey also confirmed a common assumption that Americans with lower household incomes remain underserved by financial professionals. Only about a quarter (26 percent) of those with a household income below $75k have ever worked with a financial professional, compared with over half (53 percent) of those with a household income of $75k or more.
“In general, people with more money are more likely to have benefited from professional counsel and are more confident they can convert their retirement savings into an income stream,” said Mr. Fitzgerald. “It is crucial for Americans of all income levels to educate themselves about the options available and to seek the counsel of a financial professional to develop a retirement plan that meets their needs.”
This study was conducted by ORC International using their Telephone CARAVAN® Omnibus surveys and interviewed 1,004 adults ages 18+ living in the continental United States. The study was conducted during June 26 through 29, 2014. The study used two probability samples: randomly selected landline telephone numbers and randomly selected mobile (cell) telephone numbers. Of the 1,004 total interviews, 604 were from the landline sample and 400 from the cell phone sample. The study has a margin of error of +/- 3% at a 95% confidence level.
The Phoenix Companies, Inc. (NYSE:PNX) helps financial professionals provide solutions, including income strategies and insurance protection, to families and individuals planning for or living in retirement. Founded as a life insurance company in 1851, Phoenix offers products and services designed to meet financial needs in the middle income and mass affluent markets. Its distribution subsidiary, Saybrus Partners, Inc. offers solutions-based sales support to financial professionals and represents Phoenix’s products among key distributors, including independent marketing organizations and brokerage general agencies. Phoenix is headquartered in Hartford, Connecticut, and its principal operating subsidiary, Phoenix Life Insurance Company, has its statutory home office in East Greenbush, New York. For more information, visit www.phoenixwm.com and www.saybruspartners.com.