When talking to clients about annuities, think about demographics, says Allianz exec
October 4, 2011 by Darla Mercado
System has to change; in the meantime, help clients confront
realities of longevity
By Darla Mercado
October 3, 2011
Advisers hoping to broach the topic of annuities with clients ought to step
back from product features and focus on the greater context of longevity
protection.
That was the message of Gary Bhojwani, chief executive of Allianz Life
Insurance Co. of North America, this morning’s keynote speaker at the Insured
Retirement Institute’s annual conference in Boston. His presentation looked at
the history of retirement savings and the new challenges awaiting baby boomers
as they leave the work force and prepare to take income.
“The real risk isn’t whether my roll-up is 4.5% and yours is 5% — that’s not
what these products are about,” Mr. Bhojwani said. “It’s less about the
individual features, but we have better traction by helping people understand
the need at a macro level.” That means confronting the realities of longer lives
and other changing demographics.
Advisers ought to understand that a male client who’s 65 today stands a 50%
chance of making it to his 82nd birthday, while a female client who’s 65 has a 1
in 4 chance of living to 92, Mr. Bhojwani said. As a result, those clients are
living long enough to watch inflation erode their purchasing power and drive up
costs — and some of those expenses, like the cost of health insurance, aren’t
likely to fall any time soon, he added.
Other demographics also are hurting retirees’ income prospects. For instance,
there are fewer workers to support each person using entitlement programs, Mr.
Bhojwani said.
He noted that in 1950, there were 16.5 people working for every one person
receiving benefits from Social Security and entitlement programs. That ratio is
scheduled to drop to 2.3 workers for every one person receiving benefits in
2025. “It doesn’t matter what system it is or whether it’s Republican or
Democratic — this system has to change: The eligibility age must go up and the
benefits must come down,” Mr. Bhojwani said.
Other risks he cited included sequence-of-return risk, which can ultimately
reduce the length of time an income stream will last if large market losses
occur early in the withdrawal phase.
Though the convergence of all those risks would seemingly make annuities
attractive to consumers, most clients tend to disengage when even hearing the
word “annuity.” However, if advisers and manufacturers make customers aware of
the larger risks at hand, they may be more receptive.
“What the distribution and manufacturers need to do is to get out and explain
what’s happening in America relative to retirement income planning — not even as
a sales pitch, but to say, ‘Here’s what’s going on,’” Mr. Bhojwani said.
“Perceptions are based on dated products and features, but the real
opportunity is what’s happening in demographics,” he added.
