Who Buys Annuities, and Why?
Survey identifies today's annuity buyer as fiscally conservative.
Market trends for today's senior citizens are changing almost as rapidly as the technology that companies use to serve senior markets. As a result, those firms need to stay current and regularly "take the temperature" of senior consumers.
Firms that sell annuities often rely on independent research firms to develop accurate profiles of current and prospective annuity customers. The Life Insurance Market Research Association (LIMRA) is one of the most respected of such independent firms.
recently surveyed more than 1,000 annuity owners to find out how age, retirement status, income and investable assets relate to an annuity purchase. The survey also looked at annuity owners' relationships with their agents, their annuity know-how and their income and savings. Below are some key results.
Annuity Purchase, Features and Service
- Age is the annuity owner's most distinctive characteristic. Older owners tend to have higher account balances, higher investable assets, and lower incomes than their younger counterparts.
- One in four annuity owners is retired.
- 71% of annuity owners are married, and 1 in 10 is widowed. Widowed owners tend to have the lowest income and investable assets, but they tend to have the highest account balances.
- Median investable assets for annuity owners exceeds $100,000.
- Owners who bought an annuity through a stockbroker or financial planner are generally older, wealthier and more likely to be retired.
- Owners of tax-qualified annuities (often through an employer) generally are younger, less likely to be retired, more likely to won a variable annuity, more likely to be married and more likely to have lower investable assets.
Use of Annuity and Retirement Savings
- Three-quarters of annuity owners did not "shop around" by comparing annuities when they bought their contract.
- 37% of annuity owners do not plan to make additional contributions to their annuities, while 35% are not sure whether they will make additional contributions.
- Most owners do not know whether their annuity has a death benefit, withdrawal features or guaranteed lifetime income options. Only 54% of owners of flexible premium annuities know it is possible to make additional contributions.
- Two-thirds of annuity owners purchased other financial products (usually life insurance) from the same source from which they bought their annuity.
- The most popular way to make various transactions (such as looking up account balances and withdrawing funds) is through the agent, followed by customer service and online methods. Toll-free voice response options are least preferred.
- 85% of owners are satisfied with the customer service they have received.
- The majority of variable annuity owners are "not very" or "not at all" satisfied with their annuity's performance. Improving annuity investment performance is a high priority for nearly one in five annuity owners.
- More than two-thirds of owners currently leave the money in their annuities to continue accumulating. Only 10% currently take regularly scheduled withdrawals.
- More than one-third of owners say they do not know what they will do with their annuities in the future. 15% intend to take regular withdrawals, and 14% will take out money as needed.
- 10% of owners who say they understand annuitization are twice as likely to say they will annuitize their contracts.
- Among annuity owners who are employed full-time, 58% currently contribute to an employer-sponsored defined contribution plan. 29% of annuity owners under age 70 regularly contribute to an IRA.
- 53% of all owners say they are covered by a defined pension benefit plan.
- More than 1 in 4 annuity owners expect annual returns of 10% or more from their annuities.
- Major income sources for most retired annuity owners are Social Security and employer-sponsored defined benefit plans. Major income sources for nonretired annuity owners are employment income, including self-employment earnings.
- Among retired owners, higher investable assets are related to personal savings and investments, IRAs and rental property income. Lower investable assets are generally associated with receiving Social Security income.
"Deferred annuity owner: characteristics and attitudes (2003)," LIMRA International, 9/25/03. Excerpted with permission from Standard Insurance Company (OR).
Last Updated: 6/30/2004 11:27:00 PM
- 54% of owners say they own at least one additional annuity. Owners of multiple annuities own an average of 2.7 contracts. The average combined balance held in all annuities is $133,000.
- 87% of owners also own life insurance. Males have a $100,000 median coverage, and females have a $60,000 median coverage.
- 62% of annuity owners also own certificates of deposit (CDs) or money-market funds, 55% own mutual funds and 48% own preferred or common stock.
- 32% of annuity owners have a formal written plan for meeting their financial goals.
- Only 6% of respondents say they are "very knowledgeable" about investments.
- 60% of respondents have someone they consider to be their personal life insurance agent, and 71% of these respondents purchased their annuity from this agent.