Annuities as a part of the solution
Annuities, to Thomas, are part of the solution to longevity risk. He’s quick to say they’re only a piece of the puzzle, but these insurance solutions that trade off immediate liquidity for guaranteed income are one way for clients to purchase peace of mind through the decumulation cycle. He has already seen how moments of market difficulty or instability create a desire for annuities among clients. During the 2022 bear market, as interest rates rose and the 60/40 portfolio failed to deliver, annuity sales were up.
Now that we’re in the midst of a bull run, he sees less of an appetite for immediate annuities investment. While public markets are roaring, Thomas says that advisors should be educating their clients about annuities, talking about how they’ve changed, how different guarantee terms work, and how they can help control for market volatility when it does emerge.
That education, he says, should come with a continued discussion about longevity risk. Despite years of educational efforts on the subject, Thomas says he’s seen fewer Canadians than he would expect express meaningful awareness of longevity risk. He attributes that largely to stellar markets.
Communicating annuities’ costs, technical details, utility
Key to how advisors educate on retirement longevity risk is an understanding of the technical details in annuities. That begins with a conversation about their inherent liquidity trade off. By giving up immediate liquidity for guaranteed income, Canadians are assuming that they will live a long time and potentially risking some of their capacity to react to major changes in circumstance. Thomas acknowledges that risk, which is why he positions annuities as a piece of the retirement puzzle, used in conjunction with other income sources and other invested assets that can help manage a client’s risk tolerance.
Thomas notes, too, that unlike many other insurance products like segregated funds, there are no enhanced disclosure requirements around total cost reporting for annuities.