Annuities and the 'great retirement reset'

Annuities and the 'great retirement reset'
As COVID-19 has interrupted the retirement plans of millions, these products can play a role in their planning going forward, insurance execs said at the Retirement Income Summit
AUG 10, 2020

Guarantees and uncertain times were the big themes on the first day of the InvestmentNews Retirement Income Summit Monday.

Many people have seen their ability to retire change rapidly this year, amid economic and health threats that will almost certainly have long-term consequences.

“This is a great ‘reset,’” Will Fuller, president of Lincoln Financial’s annuities business, said during the opening fireside chat. “I like the notion of the great reset, because … it is forward-looking and future-oriented. And [it] has an element of continuous improvement.”

Near-retirees have become uncertain about their retirement prospects this year, with 70% saying in a recent Alliance for Lifetime Income survey that they are more pessimistic now than they were before the pandemic, Fuller noted. About half of near-retirees have changed their retirement strategy, he said, citing the survey.

“They’re nearing the starting age of retirement,” he said. “This is the most impacted generation.”

Helping those clients adjust to the new reality and regain confidence about their retirement starts with empathy, Fuller said.

“It’s really about asking personal questions first. ‘How are you and your family holding up? What are you doing to stay safe and healthy? What is keeping you up at night?’” he said. “Consumers want to feel heard. They want to feel understood and protected.”

The latter element -- feeling protected -- has long been a selling point for annuities, though insurance companies are realizing opportunities in the COVID-19 world to develop and sell products that address people’s fears about the market, interest rates and the possibility of running out of money.

In conversations with clients, words like “in control,” “peace of mind” and “comfort” are “really resonating right now,” Fuller said.

The fact that old concepts like the 4% rule have been threatened by “a generation of falling interest rates” can mean that customers see more value in guaranteed lifetime withdrawal benefits, especially since they are available at 5%, he said.

However, annuity sales have struggled this year, with few products doing better than they did last year. One type of product that has seen sales improve is the structured annuity, or registered index-linked annuity, and insurers have been quick to issue new products in that category.

That has been a focus at Nationwide, said Eric Henderson, president of Nationwide Annuity, speaking Monday during a summit panel on tax-efficient retirement income. Such products, either with a “buffered” or “floor” design, can make sense in a financial plan, he said.

Other speakers on the panel, all Nationwide executives, said advisers should have their clients consider tax diversification in addition to asset-class diversification. That can mean allocating assets across products that are tax-deferred, tax-free and traditionally taxed, they said.

“It builds flexibility later on, if tax law changes,” Henderson said.

The Secure Act will help incorporate annuities into defined-contribution plans in the near future, said Eric Stevenson, president of Nationwide Retirement Plans.

In-plan guaranteed-income products are a popular concept, even if they are not widely available in DC plans, he said. “Over and over again, we hear overwhelmingly that over 50% of participants are really attracted to them.”

The current environment also gives advisers a chance to bring on clients they might not have considered before, said Kristi Rodriguez, vice president at the Nationwide Retirement Institute.

“How do you bring conversations to demographics that haven’t [been] engaged [in financial planning] before?” Rodriguez said.

One way to do so is to be more accessible over Zoom, Facetime or other live chat applications, Fuller said.

“We need to learn to be the absolute best on camera and be engaged,” he said. “We can all control being as good virtually as we are in person … Long term, we’re going to have to be the best at both, and meet clients where they want to be served.”

See also: Deferred income annuities are more than just a risk management tool right now - In the current interest rate environment, income annuities find themselves in the unique position of being a competitive investment tool

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