With So Many Choices, Why Do Boomers Choose Annuities?

Some boomers are initially overwhelmed at the variety of products and solutions, she says. Others are a little apprehensive, too, she adds, “especially if they’ve consulted other advisors previously who did not do a good job of education.”

Though boomers do know a lot more about financial products than people did 20 years ago, Harris says they still want to be educated and to understand options. But she doesn’t discuss products, including annuities, until she identifies the person’s needs and risk tolerance.

Her conclusion: “When boomers are looking for security, they do move money into annuities.”

Rob Grubka, vice president-individual annuities, Lincoln Financial, Hartford, Conn., agrees. The motivation to move into annuities comes out of first having a conversation with the advisor about building a long-term plan for predictable retirement income, he says.

Talking about what the boomer is trying to accomplish is more meaningful than talking about products and features, even upside potential, he says.

That discussion becomes even more meaningful when retirement is just a few years away, Grubka continues. That’s when the boomers “can better visualize what retirement will mean to them, and what their goals, lifestyle and activities will be. Then they can be more specific about income needs above the stable source of income (which pays for housing, food, energy, etc.)”

But, he cautions, none of the annuity features–say, VA features like rollups or guarantees–matter much until the boomer actually uses that money for income.

When reviewing the boomer’s situation and goals, advisors should ask what products the boomer already owns. See if any of these can help meet the goals, he suggests, and then “identify the gaps.”

If the advisor thinks a VA could help fill the gap, Grubka has this reminder: what ultimately moves boomers is the predictability of the VA guarantees and features. “Boomers recognize that they haven’t accumulated enough money so they need market exposure with downside certainty on their income,” he explains.

The retirement income market will grow, he predicts, and boomers will want their retirement income to grow, too–to keep up with inflation, for instance.

Using just one product is not the answer, he stresses. Advisors will need to diversify the tools and services they use, he says, and they will also need to include flexibility to both plan and products so they can meet the boomer’s changing needs over the 20-30 years many will spend in retirement.

As part of this process, the advisor can point out that “you can run out of money with CDs and mutual funds, but not with an income solution in an annuity.”

Most large companies are still biased toward presenting their own product as the way to go, without assessing market needs, contends Aamer Baig, managing partner-financial services practice at Chicago-based Diamond Management & Technology Consultants.

“Often, they start with a product–like an annuity–and then try to figure out to whom to sell it,” he says, citing research his firm has done with large companies in financial services and insurance.

Instead, Baig says, firms should first ask, which consumers does this product fit, and what problems does it solve?

“Understand boomers’ needs and then come up with solutions to get the boomers where they want to go,” he says.

Firms, including advisory firms, encounter difficulties when they don’t do that, he maintains. For instance, one wealth management firm he worked with had designed all services and products for affluent, sophisticated boomers with over $1 million in net worth. But in reality, Baig says, many of the clients were not affluent– “they had a strong need for products that would help the save for retirement and for client education and advice.” The actual customers would be well served if offered “annuities with education,” he says.

Annuities are just one solution, Baig stresses. “It could be that a mutual fund is the solution, or an annuity with a guaranteed income stream.”

Advisors need to ask, “what is the best way to do achieve the goal without being perceived as selling and pushing?” he says. “Also: is it right for this client? What are the (client’s) driving forces?”

If the boomer has over $1 million in net worth and manageable debt, consider products for asset protection and wealth transfer, he suggests. If concerned about today’s upheaval in the credit markets, though, “several products might be considered to offer safety–bank accounts, CDs, mutual funds, index funds, exchange traded funds, bonds–as well as annuities.”

But if income security is the goal, an annuity would be a consideration, Baig says. But so would a reverse mortgage.