The Happiness Factor and Annuity Buyer Behavior
May 19, 2015 by Gregory Bailey
Take a look at these top annuity buyer behaviors that may impact the happiness factor for your clients.
It has been said that you can’t buy happiness. But it turns out that the prospect of financial security in retirement can provide a positive boost of bliss – and advisors play a key role in making it happen.
Planning for Happiness, a 2014 study of retirees and pre-retirees by Athene and Nielsen Opinion Quest, found a strong emotional link between financial security and happiness.1 While money wasn’t necessary for emotional fulfillment, reducing or eliminating financial worry raised the happiness factor substantially.
This connection between financial well-being and contentment is reflected in the things that motivate annuity buyers and drive the purchase decision. While we tend to look at retirement planning as a rational process, the decision to buy an annuity is, at the end of the day, an emotional one. The better you’re able to understand the emotional framework that underlies your client’s financial goals, the easier it is to create a solution that makes them happy. After all, isn’t that what our business is all about?
The fact that annuities offer a tangible response to an emotional issue – the fear of outliving one’s money – helped drive a record $235.8 billion in sales last year.2 LIMRA’s 2012 study, U.S. Deferred Annuity Buyer Attitudes and Behaviors, did a deeper dive into buyer behavior.3 Their research offers a wealth of useful insights into specific financial vectors, both within and across generations.
Planning for the Future
LIMRA found that close to half of buyers purchasing both indexed (47 percent) and traditional fixed (52 percent) annuities do so in order to plan for their futures by securing future income. Other factors like market growth potential, protection from downside market risk and guaranteed income/return, while important, are overshadowed by the desire to plan for the future.
What we learn: Annuity buyers are looking for a plan to create future income. Make sure your clients and prospects understand the type of solutions annuities provide, and how they work as part of a comprehensive plan to achieve their financial goals.
Supplementing Income
Creating another stream of income to supplement Social Security, a traditional pension, or other income sources is the goal of more than half (56 percent) of indexed annuity buyers in the LIMRA study. Buyers planning to supplement their Social Security or pension income are generally ages 50 to 69. Over half the buyers wishing to accumulate assets for retirement were generally younger (below age 60). Paying for emergencies only, LTC premiums or temporary income until Social Security begins were lowest on the list of intended uses.
What we learn: Annuity buyers see the need for additional income in retirement and understand the type of solutions annuities provide. Make this an important part of your annuity story.
Advisors are Important
Having enough money to last a lifetime – along with the happiness that comes with financial well-being – is hands down the most important objective for annuity buyers. Somewhat surprisingly, only one third of buyers in LIMRA’s study were confident their money would last. But of this group, 79 percent worked with a paid professional advisor.
Overall, the study showed 70 percent of indexed annuity purchases involve paid advisors in the decision-making process. Eighty-two percent of those with financial plans for managing income, assets, and expenses purchased their indexed annuities as part of their plans.
What we learn: What financial advisors do is critical for annuity buyers whether they know it or not. Annuity buyers see that their needs and desires can be met with the solutions annuities provide.
Different Generations Are Reached Differently
It’s important to keep in mind the generational differences of annuity buyers when thinking about how you reach them and the position of your message. According to LIMRA, Baby Boomer clients typically have the resources, but are skeptical they’ll have enough to be happy throughout retirement. A clear, comprehensive plan is important for this group.
Meanwhile, the younger Generation X (roughly ages 30 to 50) is more optimistic about their personal finances, but less optimistic about the future as a whole. With 70 percent not confident that full Social Security benefits will be available when they retire, this generation of young employees is looking for long-term financial security. Retirement may seem a way off, but many are proactively looking for ways to accumulate money. It’s why one in four fixed annuity buyers are under age 50.
What we learn: Annuity buyers need the opportunity to hear about the types of solutions annuities provide.
Annuity Buyers are Happy Customers
It’s important to know that 5 out of 6 annuity buyers are satisfied with their indexed annuity. Even more, 85 percent are likely to recommend an annuity – which means more referrals for you.
This tells us annuity buyers are happy customers. Your products and advice are important to their sense of financial well-being.
LIMRA’s research indicated that retirees were generally pretty happy – 73 percent of retirees reported they were. The power of feeling financially secure about retirement was key to this report and was influenced by significant concerns, including having a steady stream of income, being able to pay for living expenses, being covered for emergencies, paying off the mortgage and leaving a legacy for their beneficiaries. The emotional considerations impacting a secure retirement included retiring before age 62, being able to stay in the family home, having time to spend with family, being able to quit working or work less, and time for travel and leisure.
When asked, those enjoying retirement advise others to save early and often – and to seek sound advice from a financial professional. Smart saving and careful planning lay the groundwork for a financially secure – and happy – retirement.
Interestingly, Athene’s research revealed that retirees who did have fixed annuities were significantly more likely to say they would do things the same or somewhat the same. Those who didn’t, on the other hand were significantly more likely to say they would do things differently.
While money isn’t necessarily what provides joy and happiness for retirees, good financial planning and even annuities stave off the money worries that get in the way of happiness in retirement. Sharing the story of annuities in a way that speaks to your client is good business – and an incredible opportunity to make a difference in the lives of others.
1 Planning for Happiness, Athene and Nielsen Opinion Quest, December 2014. 2 NAFA Annuity Research Quarterly, Spring 2013. 3 Montminy, Joseph E. and Sally A. Bryck, U.S. Deferred Annuity Buyer Attitudes and Behaviors, LIMRA, 2012.