(Unless You Call It an Annuity)
When Americans describe their ideal investments, they mention many attributes currently offered by annuity products. But if you ask them specifically about annuities, their response is often quite different.
Eight out of 10 Americans aged 44-75 would prefer a retirement product with a 4% return and a guarantee against losing value over a product with a potential 8% return subject to market risk, according to a survey of consumers by Allianz Life. When those polled ranked the most important features for a financial product, most desirable was “the ability to create a stable, predictable standard of living throughout retirement.” The “ability to provide a guaranteed income for life” ranked number two.
Similarly, a poll by AXA Equitable found that 89% of women think it’s “extremely or very important” for a retirement investment to guarantee their principal, and 85% said it’s “extremely or very important” for a financial product to protect their investments when the stock market declines. A product that guarantees income for life, regardless of whether the market goes up or down, is favored by 81% of the women surveyed.
Many annuity products offer the stability, safety, guaranteed income and peace of mind these investors say they want. Yet, the Allianz Life study found that nearly 53% of those polled believe the term “annuity” has negative connotations. Most people have only a vague idea of what annuities are and how they work. Only 23%, for example, know that people who hold variable annuities can benefit from market gains.
Media reports (and the opinions of people selling other investments) have done much to color the public’s negative perception of annuities, though that may be changing. The recession has taken a toll on many competing products, which have not fared nearly as well. In fact, a Wall Street Journal article last year explained that variable annuities “have turned out to be among the best investments of the past decade.” Furthermore, regulators and the industry have addressed problems that plagued annuity sales in the past, and these products are now some of the most heavily regulated in the financial services industry.
- This website provides a good list of pros and cons regarding annuity products.
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