Annuities 101: Understanding Its Benefits and Misconceptions
With the gradual disappearance of traditional pensions, annuities have become an appealing option for retirees seeking financial security. However, it’s not all smooth sailing.
As a survey by Greenwalk Research discovered, there’s a disparity between Americans wanting the perks of an annuity and biting the bullet to invest in one.
Setting the Stage
Greenwald Research ran a survey of 1,216 people between the ages of 55 and 95. The participants had to meet specific requirements, including having at least $100,000 in personal savings. Greenwald Research based their analysis on a randomized control trial, including one control group and two treatment groups.
Group Breakdown
Greenwald Research offered their control and treatment groups the following options, as published by the Center for Retirement Research at Boston College:
Control Group: “The trial elicited each consumer’s minimum annual lifetime annuity payment at which they would buy an annuity for a $100,000 premium.”
Treatment Group 1: An early death bequest was added to the control group’s annuity arrangement. The decedent’s heirs would receive any remaining premium balance there might be.
Treatment Group 2: The annuity differed from the control group by an added liquidity feature. Annuity holders were permitted to break their contract and receive any remaining premium.
These were the study’s seven takeaways.
Intriguing Prospect
The majority of participants (54%) said they’d be interested in owning an annuity. Forty-six percent showed no interest at all or not too much interest in annuities.
Benefits Are Clear
The survey participants showed overwhelming majority agreement regarding the benefits that annuities provide. Seventy-six percent agreed that annuities offer extra protection if one lives a long time, with only seven percent disagreeing. Similarly, 71% of respondents agreed that annuities offer peace of mind, with only 9% believing that’s not the case.
Yes, Please
Approximately half of the participants said they’d be willing to buy an annuity at prevailing market rates. But as researchers know, it’s often easier to talk the talk than walk the walk.
Contradictions
The 50 percent share of respondents who stated they’d buy an annuity at a prevailing market rate doesn’t measure up to their actions in real life. Only 13.5% of respondents have an annuity.
More Isn’t Better
According to the survey’s results, it doesn’t appear that the majority of people are willing to pay more money for death benefits or liquidity options if the costs go beyond the price of a standard immediate annuity.
Mind Over Matter
Analysts determined that not having the option to bequeath an annuity and its illiquidity are leading factors causing people to forgo annuities. However, Greenwald Research’s survey revealed that offering these options wouldn’t be any more attractive to customers than a standard annuity.
The Real Problem
Based on the survey’s findings, a lack of desire to buy annuities doesn’t appear to be the leading problem why so few people purchase them. Instead, it seems to largely come down to education and familiarity issues; not knowing how annuities work and how to buy them are some significant reasons people forgo purchasing annuities.
Changing Tide
Despite the majority of Americans not owning an annuity, the annuity market is looking up. Americans bought about $360 billion of annuities last year, significantly higher than 2022’s $311 billion in annuity purchases.
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