As the retirement system steadily moves away from guaranteed pensions to more individualized retirement accounts, longevity annuities are adding to the financial security of retirees.
According to the Brookings Institute, retirees increasingly are self-insuring against a variety of retirement risks, especially the risk of outliving their assets.
There is a wide gulf, however, between the theoretical benefits offered by longevity annuities and real-world markets, Brookings says. The barriers to a more robust market for longevity annuities are diverse, ranging from consumer decision making that does not account adequately for longevity risk to the fiduciary concerns of employers to incomplete markets for the hedging of risk by insurance companies.
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The research group notes there is a high probability some retirees will outlive the median life span.
From academics to personal finance experts to the Presidents [Barack Obama] Administration, more attention is being given to longevity risk and to retirement income products that can address and manage this risk, says Cathy Weathorford, CEO and president of Insured Retirement Institute.
Among the Brookings recommendations, one is a call for revising safe harbor guidelines for plan sponsors as they relate to annuities.
IRI also believes that providing plan sponsors with clear and workable guidance to satisfy their fiduciary obligations will help facilitate the large-scale availability of lifetime income options in retirement plans, Weatherford says.
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In a recent guidance last month, the Treasury Department supported the expanded use of annuities in defined contribution plans.
IRI adds that the Treasury Department is expected to finalize its proposal for partial annuitization, which would allow pension plan participants when given the option of a lump sum or an annuity to receive part of their benefits in the form of an annuity,esssentially removing the all-or-nothing choice that plan participants must currently choose.
According to a recent LIMRA study, annuity owners in specific income brackets are more confident about retirement and being able to live their desired lifestyle.
Higher confidence in retirement is most notable among the mass-affluent those with investible assets of $100,000 to $499,000 and affluent assets of $500,000 to $999,000.
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While the mass-affluent and affluent brackets account for almost 79% of the households surveyed, one third of mass-affluent crowd say they own an annuity and 38% of the affluent households reported annuity ownership.
These two groups have limited assets at their disposal that they will need to use in their retirement, said Jafor Iqbal, associate managing director, LIMRA Secure Retirement Institute. These consumers tell us that owning an annuity gives them confidence about their financial security in retirement.
