One of the defining trends for the annuity market in 2012 will continue in 2013: guaranteed income.
“There’s no greater time to be offering guaranteed income products,” Doug Dubitsky, vice president of product management and development for Guardian Life Insurance, told AdvisorOne on Monday. As more people enter retirement and since fewer people have access to traditional sources of retirement income like pensions, products that can provide a guaranteed income stream in retirement will be major drivers of success in 2013, Dubitsky said.
He noted that Social Security, while still available, won’t “cover most people’s lifestyle. People have their own assets they need to turn into guaranteed income.”
The annuity industry was challenged by a low interest rate environment and volatility in the equity market in 2012, Dubitsky (right) said. Income products like variable annuities and income annuities “need interest rates to keep them viable,” he said. Equity market volatility was a “double whammy” for annuities, especially variable products.
Guardian has responded to those challenges by realigning benefits over time, Dubitsky said. There have been some who’ve complained that they’re “taking away benefits,” he said, but ultimately, “benefits always have to be viewed in the economic environment they’re being sold in.”
Guaranteed income products “have always made sense,” Dubitsky said, but the problem is “getting people to pay attention to something that isn’t that exciting.” When the markets seemed to be always going up, “no one wanted to tie up their money.” Now that it’s clear that stocks and housing prices don’t always go up, guaranteed income products are showing what they’re worth. “People have always needed it,” Dubitsky said. “Now they want it.”
In an interview in July, Dubitsky said one of the difficulties advisors face with annuities is consumers’ confusion about them. That barrier has fallen a little, he said, but advisors are still working with clients who are exposed to what he calls “financial porn” on cable news. “If you talk to any financial professional,” he said,” they all say the biggest problem they’ve had for a couple of years is fear.” Advisors can develop a strong financial plan that their clients are interested in, he said, but they can’t get them to take action. “Fear of doing anything leads to doing nothing,” he added.
The key to getting past that fear, Dubitsky said, is for advisors to show clients how to cover their basic needs in retirement. Then, “they’re freed up to be an advisor,” he noted. Once a client’s basic needs are covered, the remainder of his or her assets can be used to address discretionary expenses.
Another challenge, according to Dubitsky, is that there is a general fear around the concept of retirement planning overall. Reports about the retirement gap (which EBRI reported in May was over $4 trillion for boomers and Gen Xers) are based on the collective shortfall for everyone entering retirement, Dubitsky noted. Advisors can show their clients that their own retirement shortfall is much more manageable and identify sources of assets. Then, saving enough to live comfortably in retirement “becomes more reasonable, understandable and digestible,” he said. “They’re no longer facing an insurmountable challenge.”
Going into 2013, Dubitsky expects “asset gathering will give way to income planning” as advisors recognize that income planning needs to take place with their younger clients; if they wait to have income planning discussions with clients who are closer to retirement, that’s “income action,” he said. Talking to those in younger demographics to take advantage of long-term planning opportunities and planning thoughtfully over time to give clients more leverage in retirement are big changes Dubitsky expects to see in 2013.