Annuitization And Immediate Annuities:
Big Opportunities Unfolding
We believe the annuitization market could exceed $200 billion, said Matthew Drinkwater here at the annual annuity conference sponsored by LOMA, LIMRA International and the Society of Actuaries.
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An associate scientist in the retirement research center of LIMRA International, Windsor, Conn., Drinkwater supported his prediction with information from LIMRAs ongoing research into the annuity market.
The realized market data shows that annuitization business, in 2002, came to $7.3 billion in sales, he said. And, when combined with the $5.4 billion in immediate annuities sold for the year, the total annuity income market in 2002 represented roughly $12.7 billion, he said.
But, going forward, the research suggests there will be unmet demand and enormous opportunity for annuitization of annuity assets, Drinkwater contended.
For example, by combining a number of data sources, LIMRA has arrived at what Drinkwater termed the unrealized annuitization market. For the U.S. population at this time, this unrealized market amounts to roughly $202 billion, Drinkwater said.
That figure is a projection drawn from data produced by a LIMRA survey in the summer of 2003. The survey sampled views of U.S. consumers, aged 50-75, who have $50,000 or more in investable financial assets, says Eric Sondergeld, corporate vice president and director of retirement research at LIMRA.
To arrive at its figure for the unrealized annuitization market, LIMRA projected its survey results onto the broad U.S. population in the same market segments as in the survey, he says. The $202 billion figure represents the roughly 20% of this markets investable assets that could be annuitized, Sondergeld says.
As shown in the chart, this market breaks down this way: An estimated $37.2 billion could be annuitized from people who plan to retire within 5 years; $50.4 billion could be annuitized from people who plan to retire in more than 5 years; and $114.4 billion could be annuitized from people who have already retired, according to Drinkwater.
Those are not annual numbers, Sondergeld points out. For example, the pre-retiree segments likely will have more money available for annuitization when they retire due to growth in asset values. But the number is unrealized, he stresses. It will only be realized if the annuity industry takes advantage of the opportunities the market offers.
In his presentation, Drinkwater noted that not everyone should annuitize. He cited as examples people who are in poor health, who have generous pension benefits or who are able to live mostly with their Social Security benefits.
But other people will need and want to use money from existing assets for retirement income, he indicated. The annuity industry has a huge imminent opportunity in offering annuitization and selling income contracts and guarantees to these people, he concluded.
Such individuals could annuitize assets from any financial product, not just deferred annuities, points out Sondergeld. Examples include CDs, IRAs, 401(k)s and mutual funds.
Another session at the meeting addressed opportunities related to immediate annuity products.
Based on LIMRA statistics, IA sales have been running at about $5 billion a year for the last 2 years, noted James R. Baumstark, director of payout annuity product management at Allstate Financial, Northbrook, Ill.