By Norse N. Blazzard and Judith A. Hasenauer
Recent years have seen much research and a great deal of publicity about the prospective plight of the post-World War II generation–the “baby boomers.”
The huge numbers of boomers have caused concern about the stability of the Social Security system and spawned the growth of the retirement planning industry.
At least one commentator has compared the passage of the baby boomer generation through our society to attempting to “pass a pig through a python.” The mass of baby boomers is so large in comparison to the rest of our society, it can be easily observed as it passes “through the python” of our society into old age.
As a result of the publicity about the passage of baby boomers into retirement age, everyone seems to be giving increased attention to concerns about longevity planning for retirees. Immediate annuities are being designed throughout the life insurance industry, and there are ever-increasing numbers of seminars on annuitization, payout needs for qualified plans and the like.
Despite all this attention to the need for retirement planning, there seems to be a retirement need that has not been considered. This is the need for the huge generation of boomers to be able to provide for others within their family circles who will be dependent on them when they retire.
It has been commented that the baby boom generation is the first generation in history that, in retirement, will need to support, not only themselves, but their parents (and perhaps grandparents), their children and their grandchildren.
We all know of people who have had their children return to the nest long after childhood would normally end.
Likewise, we all know of people who have “inherited” grandchildren to bring up, because their own children could not cope with the responsibilities of parenthood.
Moreover, many baby boomers will have the responsibility of giving care to their parents or grandparents long after the boomers themselves are in retirement.
This should suggest a product solution to the problem that can be provided by the life insurance industry.
Traditionally, annuities have provided for survivorship payout options with the spouse of the annuitant as the person most likely to be the joint annuitant.
Yet, the need of the baby boomers would suggest the role of survivorship annuities should expand to include parents, grandparents, children and grandchildren–particularly when these relatives may need extra care because of physical or mental infirmities.
Perhaps the concept can even be expanded to provide for extra benefits for a dependent family member when the need for hospitalization or long term care arises.
We have not yet thought through the design structure such a product would have to take. Obviously, the nature of the extra benefits will affect the design of the product.
A simple survivorship annuity with relatives in addition to the spouse can be brought to market with little additional design features beyond those that exist in existing products.
However, expanded features like additional payments for hospitalization or long term care will take greater creativity in the design process. It is likely that the easiest method to achieve the objective will be to add these features to existing forms of annuities via riders that can be elected at time of retirement.
The industry will need to think through the tax implications of these features, how the costs for the extra features will be charged and what underwriting requirements may be necessary. The products the industry may use to accomplish this expansion are shown in the chart.
If the life insurance industry can begin to develop products that will address the special needs of the baby boomer generation, it will provide not only a good marketing opportunity, but will help to cement the reputation of the industry with legislators and the general public. Absent the efforts of the industry to solve these problems, the government sector will have to address them, with the resulting expense and bureaucracy that always results from government action–a result no one wants.
It is likely that legislative action may be necessary to resolve some of the taxation and regulatory issues that will result from the life insurance industrys attempts to develop products to resolve these issues. Nevertheless, the result will be well worth the effort and will result in eventual benefit to our society.
Norse N. Blazzard, JD, CLU, and Judith A. Hasenauer, JD, CLU, are principals in the Ft. Lauderdale, Fla., law office of Blazzard, Grodd & Hasenauer, P.C. You can e-mail them at [email protected].
Reproduced from National Underwriter Edition, April 28, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.