Advisors are seeing lifetime annuities in a new light, managing general agents said at the 2012 Insurance and Investment Convention
René Belzile, retirement investment director at BBA Groupe Financier says that he is seeing less zeal for guaranteed withdrawal benefits (GWBs) since the latest changes to this product type. “GWBs no longer live in the same reality as they did at their launch in 2006. Ten-year bond rates have plunged. Also, financial markets are more volatile than ever.”
According to Bank of Canada data, government 10-year bond rates stood at 4.17% in October 2006, when the first GWB emerged. Last October, the rate was 1.72% (edging to 1.70% in December).
Mr. Belzile says that more and more clients are opting for a guaranteed return rather than growth potential. “People are looking for guarantees. They expect to live as long during retirement as they did when they were working. The dominant feeling overshadowing retirement is worry. Older people are more afraid of using up their retirement savings than they are of dying,” he explains.
Robert Lachance, investment and pension director at Groupe Cloutier Investissement, endorses both annuities and GWBs, which he says still “have their place,” because they offer security combined with growth potential. He says security is crucial. Baby boomers are just years away from retirement. They don’t have time to take risks or start over if an investment goes sour.
“With a market that has been treading water for four years, and which risks remaining anemic in 2013, our clients are shaken up,” Mr. Lachance says. Many baby boomers are about to turn 65. In a couple, there is a 50% chance that one of the partners will live until age 90, and 25% until age 94. Advisors need to evolve from capital growth specialists to payout specialists.”
Mr. Lachance does not recommend annuities for clients who have only $250,000 in savings a few years from retirement. More liquid investments are more suitable in this case, so that the client can access the principal if necessary. Savings of $500,000 allow more flexibility and room for a lifetime annuity.