Most advisors consider wealthier clients—those with $1 million or more in household investable assets—to be a less appropriate segment for annuities than clients with lower wealth levels, according to new research from the Secure Retirement Institute.
Among advisors servicing middle- and mass-affluent market segment (under $500,000 in assets) retiree and pre-retiree clients, nearly half (48%) feel that annuities are most appropriate for these clients.
The new research—which asked advisors which market segment was the best suited for annuities among their typical retiree and pre-retiree clients—found more than a third of pre-retirees are very worried about running out of money in retirement. While annuities have features uniquely suited to retirement, they are not necessarily appropriate for all retiree and pre-retiree investors.
Other SRI research shows households with less than $500,000 in investable assets made up 60% of annuity owners; households with $500,000 to $999,999 in investable assets and households with $1 million or more each represented 20% of owners.
Annuity exposure levels
When it comes to how much advisors recommend investing in annuities, the broad answer is: It depends. Advisors would generally recommend a substantial proportion of retirees’ and pre-retirees’ assets—$1 in every $3, on average—should be put into annuities, depending on the client’s wealth levels and the advisor’s own affiliation with a distribution channel.
Advisors servicing clients with less than $500,000 in household investable assets would recommend 37% of the portfolio be placed in annuities, on average. Advisors working with wealthier clients feel that their clients should only invest 27% of their assets in annuities.
Interest in annuities flat
Are clients expressing interest in annuities? Not necessarily, according to the SRI research. On average, the vast majority of recently retired and pre-retiree clients—79%—did not bring up the subject of annuities with their advisors over the past year.
Advisors whose typical retiree and pre-retiree clients have less than $500,000 in household investable assets report that nearly one quarter raised the issue; only 14% of the clients of advisors catering to clients with $1 million or more in assets brought up annuities.
While they may not be bringing up annuities, advisors believe that retirees and pre-retirees have better perceptions of annuity products in recent years. About 4 in 10 advisors agree that their clients’ perceptions of annuities have improved over the past several years.
“The COVID-19 pandemic led to extreme market volatility and investor anxiety. It also may have led pre-retirees and recent retirees to consider how their portfolios are doing, seeking ways to protect their assets against loss,” says Matt Drinkwater, corporate vice president of Retirement Research, SRI.
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