Investing

Language Matters Even More When It Comes to Annuities

An executive with MetLife urges plan sponsors and advisers to avoid talking about annuities “as if they were an investment option … they aren’t really an investment.”

By John Manganaro editors@strategic-i.com | April 11, 2017
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Roberta Rafaloff, vice president, institutional income annuities, MetLife, clearly spends a lot of time in the complex world of retirement income planning products.

She recently told PLANADVISER her 29-year career at MetLife has been dominated by annuities design and “thinking about the transition to retirement income from defined contribution (DC) and defined benefit (DB) plans.”

“In the last three decades we have seen a real evolution in how retirement income planning has been looked at and thought about,” she suggested. “If you look at the prevalent reasons why people aren’t accessing income in the DC planning context, in particular, you see some participants who say they like to maintain control of their money, and others who say they will have separate sources of lifetime income. But there is also a significant group who thinks they can achieve better investment outcomes in the end if they manage the money on their own rather than annuitizing.”

Rafaloff called this last statement “extremely problematic” from her point of view. 

“Income annuities are not investments and they really should not be compared to an investment, because in a lot of participants' eyes the comparison won't be favorable,” she said. “Income annuities are more properly considered as insurance—insurance that guarantees an individual will not run out of money no matter how long they live. That is an entirely different idea from, say, buying a mutual fund to attempt to increase your net wealth over time.”

Rafaloff went on to observe that many who fail to purchase any lifetime income when they have the option to do so later end up regretting their choices. They are paralyzed at the time by the unfortunate possibility that they could die earlier than expected—perceived as the main risk of annuities as investments. But once investors think about annuities more in the vain of insurance, comfort can increase dramatically. 

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