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Understanding who buys annuities – and why: A Q&A with LIMRA Secure Retirement Institute’s Jafor Iqbal

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LifeHealthPro sat down with Jafor Iqbal, assistant vice president of the LIMRA Secure Retirement Institute to discuss annuity buying behavior and how advisors can sell more annuities. Iqbal studies retirees and the role of financial advisors in retirement income planning.

Q. Why do you think annuities are gaining in popularity?

A. This phenomenon is due to annuities’ value proposition. An annuity is the only financial product that can offer a guaranteed lifetime income not only for yourself, but also for your spouse. There is no other financial product that can do that while taking care of market risk, market volatility and what the industry now calls “sequence of risk.” So, for example, annuities remain undisturbed if the market drops on the day after an individual retires. Annuities’ core value proposition becomes very attractive particularly to households that have limited assets but that want to make sure that their retirement is secure and they want to put a small portion of their portfolio into annuities to make sure their living expenses are covered. In addition, annuity ownership gives individuals peace of mine in their retirement years. Our research shows that annuity owners are more confident in their retirement finances and their ability to live their desired post-retirement lifestyle than those without annuities.

Q: Does annuity ownership correlate with client wealth level?

A. Yes, but only up to a point. Nineteen percent of mass-affluent clients with between $100,000 and $249,999 in investable assets own a deferred annuity, while only 4 percent of individuals with less than $100,000 own an annuity. So there’s a big leap – almost quadruple – from annuity ownership by those with less than $100,000 to those with $100,000 to $250,000.  What’s more, nearly 26 percent of clients with more than $250,000 in investable assets own an annuity. While annuities are quite popular among the mass affluent and affluent, this popularity plateaus at up to $2 million of wealth, and then annuity ownership starts to decrease.

Q. Do men purchase annuities more frequently than women? Or is it the other way around?

A. There aren’t many differences in annuity-buying behavior between men and women. Both men and women buy annuities in the same way. However, there are some differences in the size of the contracts, with men purchasing larger-sized contracts than their female counterparts.

Q. What is prime annuity-buying age?

A. We see most individuals buying annuities starting at age 55, with the average annuity buyer at age 60. These individuals are at the height of their earnings – and their assets. They’ve accumulated a lot of assets for retirement, and typically, annuities are purchased as part of retirement income planning. We believe that annuities sales will have better success when the products are presented to clients as part of retirement income planning.

Q. When it comes to annuities, what is the best advice an advisor can give to a client?

A. We know that both advisors and their clients have one key common objective: to minimize the risk of the client running out of money in retirement. LIMRA Secure Retirement Center research says that the most valuable advice clients want from their advisors is how to ensure their money lasts through their retirement years – and advisors say this is the most valuable advice they give to clients.

Q. How should advisors position annuities in a client portfolio?

A. Advisors should lead their customers through a formal retirement income planning process and introduce annuities as part of that plan, and in that context and point of view. To sell more annuities, advisors should explain how annuities can help the client minimize the risk of running out of money. This is a good approach, regardless of asset segment. It applies to everyone: affluent, mass-affluent, high-net-worth. At LIMRA, we think that in retirement, income is more important than assets, and it’s more important to ensure income in retirement so the client or retiree won’t run out of money. That’s how retirement planning should be done. That’s why I recommend that advisors don’t look at the assets, but how efficiently retirement income can be designed so the client doesn’t run out of money. That’s the most important thing to look at in retirement planning, and that’s the most important risk every client needs to face.