Knowledge of Annuities Boosts Ownership

The LIMRA study examines investors ages 50 and older with at least $100,000 in investable assets, finding there is a strong correlation between knowledge about annuities and a person’s attitude toward buying them.

“Knowledge and attitude are the key factors,” says Jafor Iqbal, associate managing director, LIMRA Secure Retirement Institute. “Households with positive attitudes are six times more likely to own an annuity than those who are unfamiliar with or have negative attitudes about annuities.”

Iqbal recommends that insurance companies and financial advisers take time to communicate the benefits of annuities and debunk the myths surrounding them. In an important development for retirement specialist advisers, the U.S. Department of the Treasury recently issued final rules regarding longevity annuities in qualified retirement plan accounts—aimed at bringing more flexibility to retirement savers using the fixed-income vehicles as a longevity hedge.

Treasury officials, along with the Internal Revenue Service (IRS), say the final rules make longevity annuities more accessible to the 401(k) and individual retirement account (IRA) markets. In short, the final rules ease certain minimum distribution requirements that have made it difficult for retirees to purchase and hold longevity annuity products without potentially jeopardizing the qualified status of their accounts.

The LIMRA study shows about a third of households own an annuity, so there is a great deal of opportunity to promote them in the context of retirement planning, especially in the area of lifetime income. Retirement plan participants crave peace of mind, the report suggests, especially when it comes to generating stable income and lessening the risk of running out of money in retirement. Both factors were cited as the top reasons to consider annuities by households polled by LIMRA (see chart).

Among annuity owners, four out of five said the products are a “good fit” for their financial needs, and 70% are willing to recommend annuities to friends and family members, according to LIMRA.

Iqbal adds that clients and advisers can both benefit from searching out new information from credible sources. He cited the recent Treasury ruling on longevity annuities as an example of a public endorsement of their value to consumers.

“Annuity owners show a noticeable improvement in confidence about their ability for a secure retirement compared to those without an annuity,” Iqbal says. “This is consistent across all the wealth segments we studied.”

The LIMRA Secure Retirement Institute is a research, consulting and professional development organization that helps insurance and financial services companies increase their marketing and distribution effectiveness. More information and research is at www.limra.com.