Why Annuities Are The Answer- And Are A Tough Sell

Time Magazine presents a poignant article today that gets to the heart of why so many people are in dire straits with their retirement. I can safely say that if you’re a regular reader or client of Annuity Straight Talk, you’re taking action to ensure this sad fate does not strike you- The article underscores why we feel so strongly that we are on the right track assisting people securing guaranteed income.

The article highlights results from a recent Blackrock study that surveyed the confidence levels of both retirees, and employees approaching retirement. See the article here.

The decline of traditional pensions and steady erosion of Social Security benefits has begun to leave most retirees without a source of guaranteed lifetime income. Plugging that hole is emerging as the most important retirement issue of our day.

How do we solve this retirement income puzzle? Annuities are the answer.  But this statistic is perhaps the most telling. 

Good luck figuring this one out. When it comes to the one sure-fire solution—immediate fixed annuities—retirees have a split personality. According to research out of Harvard, 77% of retirees wish they had locked in a guaranteed income stream when they retired and 86% say their employer should have helped them arrange one. Yet almost as many (69%) say they prefer to keep control of their retirement assets.

You can’t have it both ways. No company is going to guarantee income for life without taking control of the assets standing behind the guarantee. “We need a national conversation on this issue,” says David Laibson, a Harvard economics professor. “We need to learn more about what people want.” His comments came during a press conference for the latest BlackRock annual retirement survey, which found that retirees with a guaranteed income stream tend be most confident about their finances.

The article continues and gives some of the reasons why the logical answer is not utilized as often as it should be.

There are many reasons that retirees shun annuities. They can be confusing and some are laden with fees, and as noted people don’t like to give up control over their assets even if it means securing income for life. Another stumbling block is the low-interest rate environment, which makes annuities seem expensive. It takes $737,000 for a 70-year-old couple to buy joint lifetime monthly income of $4,000, according to immediateannuities.com.

Yes, immediate annuities where you give up control and access to your money do have drawbacks, but no other investment pays mortality credits and pays as high a guaranteed rate.

The bulk of the BlackRock study discussed the change in confidence levels and security among retirees as the workforce shifts  from a defined benefit or pension driven retirements, to defined contribution and 401K driven retirements.  

With defined benefits, longevity risk is on the plan sponsor- the employer.  But the responsibility and risk is shifted to individuals in a defined contribution world.

No matter how you solve it, securing guaranteed retirement income is an essential challenge.  The best way to solve the problem is by shifting the risk.  An annuity is a private pension, and with it, you shift longevity risk back onto the carrier.  It’s that simple.

Don’t be among that 77% who wish they’re locked in more guaranteed income.  Take action today for that guaranteed income stream that instills the most confidence in your future.

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