In the pre-retirement phase of life, conventional wisdom says that people should be saving to accumulate a nest egg that they can live off for the remainder of their lives.
But what happens at retirement? How does someone know if they have saved enough to retire? How can a person protect a nest egg from stock market erosion? What risks does a retiree take on when they start living off of their nest egg? How can someone “convert” an accumulated nest egg into guaranteed income?
Industry folks have been touting the emergence of the retirement income market for quite some time; in fact, annuity companies have responded with several products to capture the boomers’ need for guaranteed retirement income. Even the earliest versions of annuities provided for lifetime income in the form of annuitization, and immediate annuities have been around for a long time.
Yet immediate annuities and annuitization are not popular options for lifetime income today. For a myriad of reasons, these products and their features and benefits do not resonate with customers and reps. Just a fraction of today’s annuity buyers ever annuitize, and the single premium immediate annuity market has been relatively flat for a number of years.
Annuities offering guaranteed minimum withdrawal benefits and guaranteed minimum income benefits have proven to be popular choices in recent years, but it is still too early to assess the effectiveness of the income options on these types of products. At best, GMWBs and GMIBs are viewed as safety “floors” in the event the equity markets head south and clients’ contract values seriously erode.
Anyone who has studied the baby boomer market knows that there is a confluence of issues that has created a huge need for guaranteed income.
Defined benefit pensions have been on the decline for a number of years, and companies now rarely offer them or they are closed out to new employees. Defined contribution products such as 401(k) plans have increased in popularity, yet many people do not take advantage of them, and people who do know all too well what volatile markets can do to account balances. And while Social Security provides some form of retirement income, it is rarely enough to cover retiree needs, and the age when a person becomes eligible continues to go higher.
All these factors point to the huge need for individuals to save for their retirement, and when retirement comes, these people need guaranteed lifetime income.