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.