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As has been widely noted of late, annuities are experiencing a credible renaissance – one that could benefit advisors and clients alike.
Data confirm that client inquiries regarding annuities are rising and so are sales of these products, but smart advisors know that not all clients are annuities-enthusiastic. Some don’t fit that bill for the moment, others never will and others will get there. All of that is to say is annuities conversations initiated by advisors need to start from a strategic place.
Translation: know your clients. Advisors may do well to consider discussing the benefits of annuities with women due to well-documented demographic issues, not the least of which is the fact that the average woman outlives her male counterpart by 5.8 years.
Add to that, women are more likely than men to have been exposed to lower pay (thus lower retirement savings) and career gaps due to childcare or caring for older family members. Those are just a few of the reasons why guaranteed retirement income strategies, including annuities, resonate with women.
Outliving Assets Concern Looms Large
Another reason why women can be receptive to annuities is because they’re worried about outliving their assets.
“For women who are worried about outliving their savings and that’s 65% of them guaranteed income for life could mean spending security to do more of the things they care about in retirement: traveling, volunteering, donating, even starting a new business,” according to BlackRock.
As noted above, there is some strategy involved with bringing up annuities to clients and that’s true regardless of gender. Timing is part of that equation and now may be an appropriate time to initiate those chats because for the three days ending April 7, an estimated $9 trillion in market value has been wiped off equity indices.
Said another, women, as is the case with men, are worried about declining stock prices and the adverse effects that scenario has on their retirement income streams, potentially making annuities all the more alluring.
“They could also feel secure investing more. Not only could guaranteed income help ease worries about a stock market downturn – 88% of annuity owners say this is the case – it could also give women confidence to introduce more risk into liquid portfolio assets. American women over 60 last year controlled some $8 trillion of liquid wealth assets,” adds BlackRock.
Annuities Help, But…
Whether it’s annuities or other products that guarantee lifetime income, it pays to remember that “guarantee” only goes so far meaning advisors should impart upon annuity-buying clients that while they’re gaining protection, they still need to be mindful of their spending habits.
Unfortunately, data indicate many buyers of annuities or retirees receiving defined benefit pensions do just the opposite. They spend lavishly in retirement as confirmed by a 2024 study by the Retirement Income Institute. Interestingly, clients without annuities are more likely to be mindful of their retirement spending habits.
“Economic theory provides both rational and behavioral explanations for under-spending among retirees with high non-annuitized wealth,” according to the study. “Rational risk-averse retirees will spend less because they don’t know how long they will live and face the risk of outliving savings. Retirees may also exhibit behavioral preference that make them far more comfortable spending from income than they are from spending assets. Both rational and behavioral factors may contribute to lower spending among retirees who must fund a lifestyle with less guaranteed income.”