Forget the merits of the TARP program. Among the few — very few — things economists seem to agree on these days is that immediate fixed life annuities slowly are growing in popularity among Baby Boomers. Just, well, ask an economist.
One “rare point of virtually universal agreement” among economists is that immediate fixed life annuities are the superior financial instrument for establishing a base for paying out retirement income that doesn’t shrink and is guaranteed to last the lifetime of the recipient, said Steven Weisbart, Ph.D, senior vice president and chief economist of the Insurance Information Institute. Furthermore, if specified, a spouse or partner is assured that income as well, he added.
While he noted that the number of Boomers currently using fixed life annuities remains exceedingly small, that appears to be changing, Weisbart added.
According to the U.S. Census Bureau, there are about 77 million Baby Boomers. The projected population of people 65 and older is 88.5 million in 2050, which would comprise 20 percent of the total population at that time.
One reason most Boomers generally aren’t using an immediate (payout) annuity is they’re still accumulating capital, he noted. Increasingly, however, they’re buying deferred annuities that can become immediate annuities when the time comes for receiving retirement income, observed Weisbart.
Hugh Smart, assistant vice president and director of Advanced Markets at Columbus Life Insurance in Cincinnati, believes that Boomers will begin buying single premium immediate annuities more aggressively within the next 10 years as they approach retirement. Talk about annuities is rampant in the retirement income market, primarily because of the importance of a guaranteed income stream to at least help meet basic expenses, which can be realized with a single premium immediate annuity.
Additionally, with individuals living longer and underwriting standards easing somewhat, life insurance also has gained momentum among Boomers, noted Smart. Consequently, those who, a few years ago, were unable to secure life insurance due to major illness now may be able to do so if a number of years have passed since the time they had originally sought the insurance.
According to the MIB Group, which tracks the volume of applications for life insurance, for August, the MIB Life Index shows that ages 45-59 were up 0.4 percent, while the 60 and up group jumped 7.7 percent, year over year.
Generally, it appears that many Boomers aren’t planning for longevity. After all, their parents, and certainly their grandparents, didn’t, said Smart. Times have changed, however, given that at least one spouse in a couple, each aged 65, now is expected to live to 90, he continued. Boomers acknowledge their lack of enough insurance to meet their needs. “But getting them to do something about it is another thing,” he adds. To an extent, some of the responsibility rests with agents: some are much more successful than others at persuading potential clients they need more insurance, commented Smart. Furthermore, many agents don’t realize there are “a lot of new benefits and new products out there.”