In addition to competition from variable products, fixed annuities are also facing competition from other areas such as target-date or life-cycle funds which offer saving features while automatically providing asset allocation and rebalancing based on a predetermined retirement date.
“Target-date funds are very popular right now,” says Christine Marcks, president of Prudential Retirement. “But systematic withdrawal programs used with target-date funds do not address the risk of running out of money in retirement. Guaranteed solutions provide income to last a lifetime, often with money left for heirs.”
The Ernst & Young report: Retirement Income: The Value of Guarantees, notes simulations which show that relying on target-date funds in conjunction with withdrawal programs may exhaust savings one-third of the time when withdrawing at an inflation-adjusted rate of 5 percent of the initial balance and that married couples may run out of money in more than half the scenarios.
Adam Sherman, CLU, CFP, and president, FirstTrust Financial Resources in Philadelphia says the biggest obstacle facing fixed annuity sales is that their rates lately have been very close to those offered by CDs. “Clients are seeking a much greater amount of liquidity and upside potential than the markets provide,” he says while adding that most individuals find that the guaranteed minimum helps “calm their retirement-income fears.” Other common areas of concern are surrender period, participation rate and tax treatment.
Fixed annuities can give the predictability some clients seek while offsetting investment risks by offering a guaranteed interest rate, principal protection, a minimum interest-rate guarantee and fund access if needed. “Boomers are seeking a secure way to save for retirement that includes protection of principal and tax-deferred growth,” says Pam Schutz, president of Genworth’s Retirement Income and Investments group.
What’s ahead for FAs? “More flexibility for the consumer,” says Eric Thomes, senior vice president of sales for Allianz Life Insurance Co. “No two clients are alike, and for that reason you will continue to see the annuity industry evolve to meet different consumer needs. Also, the new income benefits on fixed annuities are just in their infancy. We will continue to see product innovation in this area.”
This is the final article from Joseph Finora in our series on fixed annuities. Stay tuned to www.SeniorMarketAdvisor.com for more articles on the subject.