Annuities are an investment product that sometimes suffers from a bad reputation, sort of the way time shares do. But, when purchased with the proper amount of forethought and funding, annuities do provide income in retirement and some protection from market forces and tax charges.
Investors are not, however, big fans of annuities as a product for retirement income. According to Spectrem’s new study Investor Attitudes and Ownership of Insurance Products, only 17 percent of investors own fixed annuities, and only 12 percent own variable annuities.
The market for annuities is mostly dependent upon conservative investors who do not look for sizable return on investment. Also, there are different rules regarding how annuities pay out benefits upon the death of the annuity owner, which causes some investors to decide against purchasing annuities.
According to Investor Attitudes and Ownership of Insurance Products, the most popular reason investors do not buy annuities is that they believe they can have greater return on investment with other products and investment decisions. Twenty-four percent of investors believe the cost of purchasing an annuity is too high; annuities include a commission to the person selling the policy, as well as possible management fees if the annuity invests in a mutual fund.
Twenty percent of investors say they do not trust annuities or the company selling annuities, which is obviously a perception problem. Sixteen percent note the limited potential for return, which is both a reason not to purchase annuities as well as a reason some investors invest in them.
For example, the top reason investors did invest in annuities is the “predictable income stream”. Thirty-eight percent noted the set income promised by an annuity, and that includes 43 percent of female investors. Female investors are often more likely to prefer set return on investment over riskier but potentially higher investment options.
©2019 Spectrem Group