The New Finance Of Longevity

Sign Of The Financial Times

More investors are choosing annuities for income, asset protection

by Josh Rolph

Mr. Rolph is an external wholesaler team lead at Jackson National Life Distributors LLC, the marketing and distribution business of Jackson National Life Insurance Company® (Jackson®). Visit https://www.jackson.com/
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I am a wholesaler with a leading retirement services company that consistently ranks as a top national seller of annuities.[1] When asked how I earn my living, there have been times when making this simple statement induced a blank stare and ushered in a quick change of subject. I am pleased to report this doesn’t happen often these days.

I enjoy the opportunity I have to educate our partners on the benefits of Jackson’s diverse suite of products that can help grow and protect wealth in retirement. I’m fortunate to work with many savvy financial professionals who value annuities as an important source of reliable income in a balanced retirement portfolio and effectively communicate this value to clients. Lately financial professionals tell me more clients are asking how they can protect their money with annuities, even before they are introduced to them in planning discussions.

An Attractive Versatility

Industry research supports the growing popularity of these versatile retirement products. The Alliance for Lifetime Income recently found 85% of investors are interested in owning, or already own, an annuity that guarantees regular income for life.[2] Separate research by RetireOne and Protected Life Corp. found 90% of RIAs whose clients own annuities believe guaranteed lifetime income “makes their clients happy” and allows them to “sleep easier.”[3] This research also reported a year-to-year decline in the number of RIAs who are unlikely to refer an annuity.[4]

Annuity sales also reflect strong momentum and LIMRA forecasts sales could reach as high as $288 billion in 2022, eclipsing the record $265 billion set in 2008[5] during the financial crisis. This is after Americans spent $255 billion on annuities last year — the third-highest annual total ever recorded.[6]

Disappearing Pensions, Social Security Doubts and Surging Boomer Retirements

What’s driving the popularity of annuities in retirement income planning? There are several economic, demographic and related forces in play. I’ll first address some broader trends having an outsized impact followed by more recent events that, together, are making investors eager for the financial protection annuities can offer in a challenging fixed-income environment.

One significant factor you’re likely aware of is the decline of private pensions that were often paired with Social Security benefits to provide steady, sufficient retirement income. For some scale on this decline, a recent survey of over 1,500 investors found pension ownership stands at 65% for investors age 65-75, drops to 52% for those age 55-64, and falls to 48% for investors age 45-54.[7] When considered with reported levels of annuity ownership, 45% of the youngest investors were unprotected — or lacking a source of protected income in retirement beyond Social Security.[8]

Doubts about Social Security’s future also support strong interest in annuities, with 73% of U.S. workers expressing concern benefits will not be available when they retire,[9] even as 21% plan to rely on them.[10] I’m confident Social Security will survive, but in what form remains unclear, and if Congress doesn’t replenish the trust funds that support the program by 2035, it would trigger a 20% cut in benefits.[11] It’s noteworthy the average household already loses an estimated $110,000 by claiming benefits before full retirement age[12] and pre-retirees can tend to overestimate their benefit amount.[13]

A third major trend contributing to the need for the reliable retirement income annuities can offer is the sheer number of Baby Boomers reaching retirement age, which is expected to continue to accelerate until 2024, when more Americans turn 65 than at any point in history.[14] Planning for this income has become central to these investors’ retirement security and it’s not surprising financial professionals report having had income planning conversations with eight of 10 investors age 55 or older.[15]

These factors are interrelated because having a pension or annuity in addition to Social Security supports investors’ confidence in how prepared they are for retirement. Of those who have an annuity or pension, 92% are confident they will have all the income they need to cover their expenses.[16]

‘Weird Economy’ Leaves Investors Seeking Clarity, Protection

Derek Thompson, a writer for The Atlantic, recently described what most of us have likely thought more than once over the past couple years: “The U.S. economy can’t be this weird forever. That’s what I keep telling myself anyway. … But after a year of shortages, the Great Resignation, and rising inflation, I’m still waiting for normalcy.”[17]

The strange economy Thompson describes is marked by a rare confluence of economic conditions born of the pandemic that continue to challenge policymakers. The pandemic triggered a “retirement reset in people’s minds,” according to Jean Statler, CEO of the Alliance for Lifetime Income,[18] and created an “incredible demand today for the benefits of protected solutions.” Citing Alliance research, she suggests annuities can give clients “the protection and peace of mind they want.”[19]

Extreme stock market volatility and the highest inflation in 40 years[20] soon followed. The latter has resulted in Americans paying more for everything from airline fares and electricity to groceries and clothing.[21] BlackRock recently reported rising inflation is damaging Americans’ confidence in their retirement security due to its impact on workplace retirement plans.[22] Jackson’s own recent research found even retirees who saved sufficiently for retirement consider inflation’s impact on their savings and poor investment performance as top concerns.[23]

The factors I mentioned and others — including the ongoing war in Ukraine — have combined to paint an uncertain economic picture marked by wide-ranging data that often sends conflicting signals. Against this murky financial backdrop, more investors are turning to annuities to seek protection against unpredictability in stocks and bonds. Bond prices have been under pressure as the Federal Reserve tries to tame inflation.[24]

Not Your Parents’ Source of Protected Income

Amid today’s longer life spans, the heightened economic uncertainty we’re all experiencing only reinforces the value of securing a source of protected lifetime income and the sense of security it can provide...

There is a broad range of annuities available today offering more choices and greater flexibility to address changing economic conditions and evolving investor needs, whether they involve supplementing retirement income, preserving principal or building a more diverse retirement portfolio. Optional riders make it possible to customize annuities to include such benefits as guaranteed lifetime income or, in the case of variable annuities, steady income with equity exposure and a high level of protection against market downturns.

It’s important to note there is a cost associated with riders that offer guarantees and one objection that can surface among clients is a perceived high cost of annuities compared to other financial products. Although additional fees for a variable annuity with “retirement income insurance,” for example, can add to the overall cost of the product, the features can soften the impact of market losses and ensure predictable income insulated from market volatility.

One way I like to explain such benefits to my clients is in terms of Medicare, which begins at 65 but requires supplements to provide more complete healthcare coverage. In income planning, Social Security is similar in that it is a great head start for retirement income, but can fall short of what’s desired. An annuity with a lifetime income benefit can be viewed as a Social Security supplement to round out the need for reliable income in retirement.

Beyond the flexible options today’s modern annuities offer, advancing technology has led to new digital tools that make it easier than ever to include them in productive client conversations. For instance, at Jackson we continue to commit significant resources to building technology and platforms that integrate our products into financial professionals’ businesses, simplify the transactional process, and make it easier to show the impact annuities can have in clients’ portfolios.

Amid today’s longer life spans, the heightened economic uncertainty we’re all experiencing only reinforces the value of securing a source of protected lifetime income and the sense of security it can provide. While there is a bounty of products out there designed to minimize risks, only one can help eliminate the risk of running out of money — an annuity.

I’m proud to work for a company committed to reducing the confusion that can complicate retirement planning, especially as record numbers of Baby Boomers reach retirement age. I’m also excited more financial professionals and their clients are choosing annuities for the reliable retirement income they can provide.

 

 

 

Jackson, its distributors, and their respective representatives do not provide tax, accounting, or legal advice. Any tax statements contained herein were not intended or written to be used and cannot be used for the purpose of avoiding U.S. federal, state, or local tax penalties. Tax laws are complicated and subject to change. Tax results may depend on each taxpayer’s individual set of facts and circumstances. You should rely on your own independent advisors as to any tax, accounting, or legal statements made herein.
Annuities are long term, tax deferred vehicles designed for retirement. Variable annuities involve risk and may lose value. Earnings are taxable as ordinary income when distributed. Individuals may be subject to a 10% additional tax for withdrawals before age 59½ unless an exception to the tax is met.
Annuities are issued by Jackson National Life Insurance Company® (Home Office: Lansing, Michigan) and in New York by Jackson National Life Insurance Company of New York® (Home Office: Purchase, New York). Variable annuities are distributed by Jackson National Life Distributors LLC, member FINRA. May not be available in all states and state variations may apply. These products have limitations and restrictions. Contact Jackson® for more information.
Guaranteed lifetime income can be obtained through the purchase of an annuity with an add on living benefit. Add-on living benefits are available for an extra charge in addition to the ongoing fees and expenses of the annuity and may be subject to conditions and limitations. There is no guarantee that an annuity with an add-on living benefit will provide sufficient supplemental retirement income.
Guarantees are backed by the claims paying ability of the issuing insurance company.

Jackson is the marketing name for Jackson Financial Inc., Jackson National Life Insurance Company and Jackson National Life Insurance Company of New York®.
[1] LIMRA, Fourth Quarter YTD Annuity Sales Results, 2015-2021
[2] Alliance for Lifetime Income, In a $1 Million Retirement Income Portfolio, Investors Choose Annuities and Protection Over Traditional 60/40 Allocation, Dec. 6, 2021
[3] 2021, RetireOne, Protective, Lifetime Income or a Fully-Stocked Wine Cellar
[4] Ibid
[5] CNBC, Annuity sales rise, buoyed by market fears and higher interest rates. What to know before you buy, June 9, 2022
[6] Ibid
[7] Alliance for Lifetime Income, Generation X Turning to Annuities at Higher Rates in Search of Protection as Private Sector Pensions Disappear, June 21, 2021
[8] Ibid
[9] Transamerica Center for Retirement Studies, A Compendium of Findings About the Retirement Outlook of U.S. Workers, 21st Annual Transamerica Retirement Survey of Workers, November 2021
[10] Ibid
[11] InvestmentNews, Social Security program needs reform now, June 30, 2022
[12] United Income, “The Retirement Solution Hiding in Plain Sight: How Much Retirees Would Gain by Improving Social Security Decisions,” 2019.
[13] Nationwide, Future retirees overestimate how much they will receive in Social Security benefits, May 8, 2019
[14] Alliance for Lifetime Income, Generation X Turning to Annuities at Higher Rates in Search of Protection as Private Sector Pensions Disappear, June 21, 2021
[15] Ibid
[16] Ibid
[17] The Atlantic, The Everything-Is-Weird Economy, July 18, 2022
[18] Alliance for Lifetime Income, Generation X Turning to Annuities at Higher Rates in Search of Protection as Private Sector Pensions Disappear, June 21, 2021
[19] Ibid
[20] Financial Times, US inflation stays at 40-year high, defying expectations of bigger drop
[21] The Wall Street Journal, Grocery, Airfare Inflation Reached Historic Highs in April; Gas Prices Eased, May 11, 2022
[22] Blackrock, BlackRock Study: Confidence in Retirement Security Declines for the First Time Since Before the Pandemic, July 19, 2022
[23] Jackson’s Q1 Content Study, Inflation Perspectives, March 2022
[24] CNBC, Annuity sales rise, buoyed by market fears and higher interest rates. What to know before you buy, June 9, 2022