Insurer lures young annuity buyers by invoking parents' financial woes

Insurer lures young annuity buyers by invoking parents' financial woes
MassMutual has a new annuity designed for customers who fear they'll have to help cash-strapped parents in later life.
NOV 14, 2019
Massachusetts Mutual Life Insurance Co. is banking on attracting a swath of younger annuity customers by citing the threat of their parents' financial insecurity in old age. The insurer issued a new annuity product Wednesday with a simple marketing pitch: If your parents live a long time and run out of money in retirement, you could be on the hook for their care. And that could be expensive. Haven Life Insurance Agency, which is owned by MassMutual, developed the AgeUp annuity for consumers ranging from millennials to Generation X who want to set aside money for this situation, which could become more common as Americans' longevity continues to increase. The annuity, whose payments are deferred until a parent is at least 91 years old, is unique because of its combination of a few features, according to experts. For one, the annuity is marketed to the children of retirees or near-retirees, not the retirees or near-retirees themselves. It can only be purchased online, making it a relative outlier in a paper-heavy industry in which products are often sold through intermediaries such as financial advisers, brokers and insurance agents. And consumers can purchase the annuity with periodic monthly payments as low as $25 — similar to the way they might contribute money to a workplace retirement plan — when the broader industry typically only accepts large lump-sum payments. "I think it's a different way of approaching the retirement crisis," Tamiko Toland, head of annuity research at Cannex Financial Exchanges Ltd., an annuity data provider, said of AgeUp's marketing to younger people. [Recommended video: Mary Beth Franklin: Encourage shopping during Medicare open enrollment] The target market, she said, differs from annuity providers' typical retiree or near-retiree customer base; instead, the target is young people who believe the onus will be on them to house their parents or pay for their care. "This big middle-market customer base is largely underserved, especially when it comes to annuities or longevity products," said Blair Baldwin, general manager of the MassMutual product. "AgeUp is our attempt to sort of fix that." Average life expectancy has increased 10.4 years in the U.S. since 1950, to 78.6 years, according to most recent statistics from the Centers for Disease Control and Prevention. The average 65-year-old can expect to live 5½ years longer today than in 1950. Longevity is among the most complicated issues for which financial advisers and clients have to solve — it's at the heart of every financial plan, and underestimating lifespan can have dire consequences. Financial advisers increasingly forecast clients' financial plans into their 90s and even past age 100. Yet many retirees seem ill-equipped to manage such a lengthy retirement. Baby boomers have saved a median $152,000 in all household retirement accounts, according to the Transamerica Center for Retirement Studies. Nine percent of boomers report having no retirement savings. "It's wonderful to live a longer life, but we tend to live a longer life with chronic illnesses, which may require some care over time," said Amy Goyer, a family and caregiving expert at AARP. Around three-quarters of those caring for family members, whether financially or otherwise, incur out-of-pocket expenses for that care, Ms. Goyer said. They spend an average of roughly 20% of their income. "If your parents don't have a financial backstop already, you know it'll fall onto you," Ms. Toland said. Millennials already experience considerable financial pressure as a result of things like student loans and purchasing a home, she said. While insurers typically pitch their products as longevity protection, many haven't offered the category of "advanced life deferred annuities," whose payments kick in late in life, Ms. Toland said. In the MassMutual product, customers can choose for income to begin when a parent is between 91 and 100 years old, which Ms. Toland believes is the longest-dated one on the market. Such annuities whose payments are deferred to an advanced age typically pay out much larger sums than other types of annuities, because many of the other customers will have died before receiving income. So the lucky few who receive the payments get larger payouts as a result. The Treasury Department tried spurring interest in so-called longevity annuities in 2014 by changing the tax code to create qualified longevity annuity contracts, known as QLACs. However, there hasn't been much uptake aside from wealthy Americans using QLACs as a way to defer paying tax, Ms. Toland said.

Latest News

JPMorgan tells fintech firms to start paying for customer data
JPMorgan tells fintech firms to start paying for customer data

The move to charge data aggregators fees totaling hundreds of millions of dollars threatens to upend business models across the industry.

FINRA snapshot shows concentration in largest firms, coastal states
FINRA snapshot shows concentration in largest firms, coastal states

The latest snapshot report reveals large firms overwhelmingly account for branches and registrants as trend of net exits from FINRA continues.

Why advisors to divorcing couples shouldn't bet on who'll stay
Why advisors to divorcing couples shouldn't bet on who'll stay

Siding with the primary contact in a marriage might make sense at first, but having both parties' interests at heart could open a better way forward.

SEC spanks closed Osaic RIA for conflicts, over-charging clients on alternatives
SEC spanks closed Osaic RIA for conflicts, over-charging clients on alternatives

With more than $13 billion in assets, American Portfolios Advisors closed last October.

William Blair taps former Raymond James executive to lead investment management business
William Blair taps former Raymond James executive to lead investment management business

Robert D. Kendall brings decades of experience, including roles at DWS Americas and a former investment unit within Morgan Stanley, as he steps into a global leadership position.

SPONSORED How advisors can build for high-net-worth complexity

Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.