Just like Sebastian Junger’s excellent book, “The Perfect Storm,” the annuity industry has a major hurricane coming, blowing from its back.
The storm was devastating for the crew of the Andrea Gail, but good for the success of Junger’s book.
The COVID-19 pandemic is tragic for the people who get the virus, and for the businesses and workers struggling with shutdowns. But it will be good for demand for products that provide certainty.
At no time in recent history has a storm of this epic proportion happened in the annuity industry. The aversion to any risk, the massive baby boomer population, and the absolute need for guaranteed income has shoved annuities to the forefront of the financial world.
As the financial world deals with the coming substantial bank losses from borrowers, mortgage companies are fearing a large transfer of real estate obligations to them. Banks are unable to offer anything reasonable in interest rates; the annuity category stands as the obvious choice for those who fear to confront risk.
(Related: All Is Not Quiet on the Annuity Front)
Guaranteed interest rates, guaranteed lifetime income, removal of risk, and the lowering of personal stress are immediate benefits and a pure target for millions of people. Adding to the stress and anxiety caused by the current worldwide pandemic, the worry and concern over the future financial catastrophe can be too much for many. Adding to the pressure of an unknown future is that many baby boomers are still working and need to accumulate enough funds for retirement still. Many (20%) in this group have less than $5,000 in personal savings, according to the Northwestern Mutual Planning and Progress Study.
When making later in life decisions regarding retirement choices, the safety and security of retiree’s funds become essential. If a wrong choice is made, most baby boomers would not have enough time to weather the loss and even regain their starting point.
Common sense would tell most people considering retirement that a foundation of “no risk” retirement funds becomes more than essential; they become vital. Where else in the financial world can you earn a reasonable rate of return, have an income guaranteed for a lifetime, and include the benefit to cover a spouse? Nowhere.
Bonds: with the current low-interest-rate environment, any desire for a higher than normal interest rate would come with credit risk and a low rating. Plus, if interest rates increase, the value of the bond in the secondary market would be reduced.
Bank products: current interest rates are extremely low. It doesn’t look like the Federal Reserve is going to increase rates during our recession, plus using bank products for long term retirement means when the money is gone, so is the retirement check. Bank products are also fully taxable on any interest received, whether it is used or accumulated.