What will be the cutting edge product of 2007? Rather than a particular product or rider, the real excitement will be bundling different products and riders and developing a process for income distribution.
Every insurance company seems to be targeting this huge market niche.
And why not? The first wave of baby boomers just turned 60, and retirement, at least a partial one, is on their minds. Add the fact that the Pension Protection Act of 2006 endorses long term care riders on annuities, and the real excitement next year will be in the annuity arena as it relates to income distribution planning.
The industry has done a great job in helping clients accumulate assets. But the biggest problem clients will have in the future is getting distributions, and increasing ones at that, from those assets.
Consider the following challenges facing clients today:
o Less than 20% have defined benefit pension plans. That is down from over 40% in 1990 (as per the Bureau of Labor Statistics).
o Health care costs, as a percentage of Social Security benefits, are at 20%, but they are projected to be over 50% by 2026 (as per U.S. Rep. Pete Stark; and the Centers for Medicare and Medicaid Services, Office of Actuary).
o New retirees may spend 30+ years in retirement, much longer than previous generations, according to most demographers.
o The rule of thumb is that inflation doubles retirement needs over 30 years.
o How reliable is the income they hope to generate?
Certainly the industry has developed a multitude of products across the spectrum, from fixed to indexed to variable, but there really is no one product that can:
o Create a strategy to provide long-term, inflation-adjusted income.
o Create pools of money designed to be held for specific periods of time.