Consumer confidence about retirement opens the conversation on annuities
by Alana Ritchie Ms. Ritchie has spent years studying, writing and learning to love the intricacies of the English language. Today, she works as a content writer for Annuity.org, where her primary focus is personal finance.
Prospective annuity clients want future stability. What can you offer them?
The best answer may be an insurance product that gives clients two things – financial security and confidence about their retirement years. And don’t underestimate the value of confidence. Two recent studies from the Life Insurance and Market Research Association (LIMRA) show an uptick in consumer confidence about retirement, giving producers an opportunity to build on this positive outlook by focusing on the security annuities provide.
The first study revealed consumers’ growing trust in the general financial sector, which suggests a mindset open to making more investments across the spectrum of risk. The second recognized that a significant portion of affluent consumers believe that owning an annuity gives them greater confidence in their financial future.
Why not provide access to greater confidence and security for a broader audience by offering annuities to more consumers in the affluent and mass affluent categories, as well as those in other income sectors? These surveys identify an opportunity to sell confidence and offer customization to prospective annuity buyers.
Sell to a Confident Audience
Today’s consumer mindset makes for fertile annuity selling ground. A 2015 LIMRA study recognized a shift toward improved consumer sentiment regarding the financial sector.
To understand the value of this shift, you have to look at how far consumer confidence has come. The study includes data from consumer surveys taken in 2008, just after the economy plunged, through 2015.
The Great Recession shattered confidence across the board. Investors in every demographic lost money. Americans overall lost faith in the financial sector, and even as the market began improving, they struggled to regain confidence – until now. Consumers today have a better feeling about the overall financial sector, including banks, insurance companies and financial advisors.
From 2008 to 2015, confidence in community, national, regional banks and credit unions increased by 17 percent. Remember, this encompasses a time when banks were pummeled as it was revealed that executives generated millions of dollars in bonuses in the wake of their institutions admitting to making woeful sub-prime loans – and while they pushed tens of thousands of Americans into foreclosure.
Now consumers see advisors, insurance agents and brokers, who work with companies to sell annuities, in an increasingly positive light – an increase of 12 percent. For the first time since 2008, more than one-third of consumers have a positive view of the economy. Jennifer Douglas, an associate research director for LIMRA, attributes much of this to improving equity and labor markets, low gas prices and the beginning of a new year.
The stage for selling is set. You have an opportunity to ride the momentum from increasing consumer reliability and offer access to greater security for the future. Strengthen these good vibrations by pointing to tangible improvements in the economy, and then give consumers buying options in a stable financial environment.
Annuity Owners Feel Secure
The latest survey follows one from 2014 that identified annuity owners as confident consumers. It found that within key income segments, annuity holders have greater confidence concerning financial security in retirement.
The earlier survey was compiled in November 2014 and included data from 2,000 consumers ages 50 and older with $100,000 or more in investible assets. It shows mass-affluent consumers (those who have investible assets of $100,000 to $499,000) and affluent consumers ($500,000 to $999,000) have high confidence in their futures.
One-third of first segment and 38 percent of the second own annuities. These positive-thought annuity owner segments made an intentional choice to leverage some of their assets for a tool to help pay bills in their golden years. This fact alone made for a more handsome perception of their future outlook.
“These consumers tell us that owning an annuity gives them confidence about their financial security in retirement,” said Jafor Iqbal, associate managing director of the LIMRA Secure Retirement Institute. Despite the ever-present controversy about the utility of many annuity products, consumers believe these long-term investment vehicles are right for them now and right for their later retirement.
The study also describes how much attitude can impact a purchasing choice. “We found that investors know about annuity features and go into the process with a positive attitude which directly influences the purchase decision,” Iqbal said. The immediate take-away: evaluate your sales techniques to find how you can find more investors who already have this positive attitude. Odds are, once you find them the buying mindset is already in place.
Confidence for New Buyers
The 2014 study indicates that a remaining population of non-annuity owners also exists – another group of potential buyers.
You can target this group by offering the investment that can move their retirement mood from “not confident” to “very confident.” These non-owners are made up of the two-thirds of the mass-affluent and 62 percent of the affluent clients that are without annuities.
It’s a population with a significant amount of money at its disposal and a desire found in almost any pre-retiree, that of wanting to have a secure feeling about their lives after they quit working. While the study focuses on the wealthy – or the well-saved – advisors can also tap into lower income segments of non-annuity owners.
When LIMRA compared households with more than $1 million in assets, it found 44 percent of annuity owners were “very confident” of a secure retirement. The number of non-annuity owners in this category expressing the same mindset was only 35 percent. The higher income spectrum, starting with the affluent category, may find innovative annuities with customizable riders appealing, making them ideal consumers for insurance companies which continually add features to existing types of annuities.
A lower spectrum, including mass-affluent and those with less than $100,000 in investible assets, may benefit from purchasing annuities where premiums are paid over time and the deferred income is fixed. These can be affordable and come with guarantees.
Customize the Future
Inform your clients that they can use annuities to maintain long-term financial stability. The current economic climate may not last, especially not for those who are without a revenue plan after they stop working.
The combination of pensions, social security, 401(k)s and other savings may not provide the same annual cash flow paychecks brought in. This creates a platform for selling. The specific type of annuity can be tailored to your client’s individual situation. Consider age, risk aversion, future needs and confidence level for each client to determine which annuity is appropriate.
- For clients needing future security, fixed payments offer reliability. The guaranteed stability offered by predictable payments can provides these clients with confidence.
- For clients with a strong portfolio – like those in the first survey that have experience a strong recovery from losses during the Great Recession – a variable annuity can give them an opportunity for increased growth.
- For clients eager to see payments coming in soon, an immediate annuity may be appropriate.
- For clients focusing on the disparity of income they will earn during retirement, a deferred annuity offers a chance to reserve savings for the future.
With all these products, consumers can think good thoughts about fishing, enjoying their country club and traveling in their 70s, all while enjoying the perk of tax-free growth.
Make the Golden Years a Secure Prospect
What does confidence and security in retirement look like? It means your clients know they’ll have disposable income and won’t have to sweat an emergency expense. It means periodic payments from an annuity could make their ideal retirement lifestyle affordable.
Annuity income may grant access to reliable health care, the best golf course, vacations to see grandchildren and overall stability. Knowing they can expect annuity income gives buyers a positive future outlook. Sell an annuity not packaged as a product but as a way to take the financial footing they already have and re-creating it for the future. ♦