The largest, wealthiest, and perhaps most influential body of Americans are currently retiring, and they are doing so in droves. The baby boomer generation, traditionally defined as those who were born between 1946 and 1964, make up the largest portion of working Americans. They have influenced everything from the hula hoop to home ownership, and they control approximately 80 percent of the world’s wealth. In short, when they speak, people listen. This phenomenon is why baby boomers have the unique ability to influence the insurance industry in ways never before seen. According to the Social Security Administration, 10,000 baby boomers a day are becoming eligible for Social Security and Medicare benefits; this is a staggering number and one that is likely to remain that way for the next 16 years or more.
Part One: Annuities go with the flow
In 2011 the Associated Press took a survey of baby boomers: half of them are delaying retirement and a staggering 60 percent lost value in their investments during the 2008 financial crisis. Baby boomers have had to endure a dot-com bubble, a housing crisis, a war on terrorism, and the financial crisis of 2008‑and that was just in the last decade. The financial turmoil brought about from the “lost decade” of investing will never be fully recognized. While we as advisors will never be able to accurately forecast stock market corrections or pullbacks, we can prepare our clients for the next 2008 by utilizing alternative investments. Perhaps we should shift our strategy for those baby boomer clients away from rate of returns and toward lifetime income guarantees; after all, baby boomers have spoken and a staggering 61 percent fear outliving their money in retirement over death.
The best fit
If baby boomers want lifetime income guarantees and a stable, predictable retirement standard of living, then annuities are unquestionably the answer. Now I am not advocating that the annuity is right for everyone, but for those seeking guarantees in the golden years annuities tend to be the best fit. No stock, bond, mutual fund, CD, or other investment in the world can offer clients guaranteed income for life. As advisors, one of our many roles is to ensure that when clients retire they can stay retired and not worry about running out money. Most variable annuities once offered livings benefit riders; however, after the 2008 financial crisis many insurance companies went running for the hills, slashing rider benefits, and in some cases shelving products all together.
This situation presented an opportunity to many insurance companies that had not offered living benefit riders: the fixed annuity marketplace. Almost as soon as variable carriers exited the arena or shelved products, a staggering number of fixed annuities and fixed indexed annuities began to offer living benefit riders. One company, Allianz Life, has even brought to market the first and only annuity that offers increasing income on a depreciating asset. Think about it, for the first time in history you can not only offer your clients joint lifetime income, but you can also offer the ability to have income that is going up even if the investment value is going down—an invaluable tool when attempting to combat inflation. Most variable annuities would only offer the ability for a raise in your income on your anniversary if the annuity gained value after withdraws, which is very unlikely to happen for contract holders taking income after 2008.
A new way of thinking
Indexed annuities offer a completely new way of thinking about retirement income for baby boomers; they provide the ability to offer the traditional pension-like qualities of retirement funding (predictable lifetime income for both spouses) accompanied by an asset you can control (401(k), TSP, 403b, etc.). For the first time in our history we can offer lifetime income to our clients and the ability to have that income increase in future years to combat inflation.
Today, conversations about annuities should start with the benefits and basics of how they work, not with the word annuity. For years the word annuity has been looked down upon, frowned upon, and the investment itself is often misunderstood. If clients really understood these benefits and you were to offer those benefits to them in a “mutual fund,” who wouldn’t want one?