By Linda Koco
As boomers move closer to retirement age, there is a lot of talk among financial providers about developing modernized income planning products, programs and services–so retirees can have an income they wont outlive, says John Fenton.
But are financial providers actually developing such programs, products and services?
Experts contacted say providers are inching that way but not galloping. Still, the motion is forward and that is where eyeballs are turning.
Development activity in this area is on a “slow grow,” says Fenton, who is a principal at the Tillinghast-Towers Perrin consulting firm in Atlanta. There is interest, he says, but not a lot of action.
That wasnt always the case. Four or five years ago, he recalls a number of providers put “a reasonable amount of resources” into designing new income planning solutions via annuities. But the recession doused much of that.
Now, even though the economy is improving, there has been “no particular increase” in, and “no traction” for, income planning development activity, Fenton says.
At Aurora Consulting in St. Louis, the view is the same. “Weve had no inquiries from providers in that respect,” says Charles Butts, vice president.
One reason might be that most of Auroras clients focus on life insurance, Butts allows. Still, he says, “there is a lot of talk about income planning at trade meetings and in articles but not a lot of inquiry about developing products.”
Financial providers may be detecting “a lack of enthusiasm or interest in the concept from consumers,” Butts posits.
That may be because people still are not aware that many newer income products do offer liquidity, he continues. Also, he says, producers do not view the products as particularly lucrative, from a compensation standpoint.
The inactivity puzzles Butts. “We really dont know why its like this right now. But we do know you can do things to make income products more attractive, if that is the main concern.”
Likewise, at ClienTell Inc., a Torrance, Calif., financial education and training firm, “there has not been as much activity in this area as you would think,” says Douglas Urata, chief operating officer.
Last year, for example, ClienTell did produce a continuing education course on immediate variable annuities. “We ran about 55 workshops on IVAs,” Urata says, but “demand for this product is lower than for our other annuity programs.”
Jay Jaffee, principal of Actuarial Enterprises, Ltd., Chicago, also sees no increase in requests for income planning designs. His take: Insurers are holding back because consumers do not view the industrys income products as attractive.
“For people who have saved money for retirement, the ideal product is an annuity that doesnt kick in (with monthly payouts) until youre in your 80s or 90s,” Jaffee maintains. If people still are alive at that age, their liquid assets will probably have been mostly used up, he explains. “So, that is when income annuity payments could step in, to address the issue of living too long.”
Theres another problem, too, Jaffee cautions. “The public typically doesnt buy insurance products for the catastrophic event or for the long term,” he says. “Instead, most people want dollar-trading.” That is, if you give someone a dollar, the person wants at least a dollar back.
In short, the public does not understand how insurance works, the actuary says. Complicating matters, people usually do not see the results of insurance, as when the money is paid out in claims or benefits, he says. “They will hear about people getting lottery winnings but not insurance.”
As a result, many consumers are reluctant to put money in financial products that “pay off” many years from now, says Jaffee. That includes an annuity that would start paying proceeds when the persons age is in the 80s or 90s.
This reluctance may change with increased longevity, he suggests. In retirement, “consumers will need help with spending management, not savings management,” he says, and they will face significant exposure to catastrophic losses in the advanced years.
Fenton thinks provider reluctance to move more deeply into income planning right now reflects not only liquidity issues and lack of advisor interest but also the following: