Thursday, November 14, 2019

Insurer lures young annuity buyers by invoking parents' financial woes


MassMutual has a new annuity designed for customers who fear they'll have to help cash-strapped parents in later life
Nov 14, 2019 @ 2:09 pm By Greg Iacurci Share
Massachusetts Mutual Life Insurance Co. is banking on attracting a swath of younger annuity customers by citing the threat of their parents' financial insecurity in old age.
The insurer issued a new annuity product Wednesday with a simple marketing pitch: If your parents live a long time and run out of money in retirement, you could be on the hook for their care. And that could be expensive.
Haven Life Insurance Agency, which is owned by MassMutual, developed the AgeUp annuity for consumers ranging from millennials to Generation X who want to set aside money for this situation, which could become more common as Americans' longevity continues to increase.
The annuity, whose payments are deferred until a parent is at least 91 years old, is unique because of its combination of a few features, according to experts.
For one, the annuity is marketed to the children of retirees or near-retirees, not the retirees or near-retirees themselves. It can only be purchased online, making it a relative outlier in a paper-heavy industry in which products are often sold through intermediaries such as financial advisers, brokers and insurance agents. And consumers can purchase the annuity with periodic monthly payments as low as $25 — similar to the way they might contribute money to a workplace retirement plan — when the broader industry typically only accepts large lump-sum payments.
"I think it's a different way of approaching the retirement crisis," Tamiko Toland, head of annuity research at Cannex Financial Exchanges Ltd., an annuity data provider, said of AgeUp's marketing to younger people.
The target market, she said, differs from annuity providers' typical retiree or near-retiree customer base; instead, the target is young people who believe the onus will be on them to house their parents or pay for their care.
"This big middle-market customer base is largely underserved, especially when it comes to annuities or longevity products," said Blair Baldwin, general manager of the MassMutual product. "AgeUp is our attempt to sort of fix that."
Average life expectancy has increased 10.4 years in the U.S. since 1950, to 78.6 years, according to most recent statistics from the Centers for Disease Control and Prevention. The average 65-year-old can expect to live 5½ years longer today than in 1950.
Longevity is among the most complicated issues for which financial advisers and clients have to solve — it's at the heart of every financial plan, and underestimating lifespan can have dire consequences. Financial advisers increasingly forecast clients' financial plans into their 90s and even past age 100.
Yet many retirees seem ill-equipped to manage such a lengthy retirement. Baby boomers have saved a median $152,000 in all household retirement accounts, according to the Transamerica Center for Retirement Studies. Nine percent of boomers report having no retirement savings.
"It's wonderful to live a longer life, but we tend to live a longer life with chronic illnesses, which may require some care over time," said Amy Goyer, a family and caregiving expert at AARP.
Around three-quarters of those caring for family members, whether financially or otherwise, incur out-of-pocket expenses for that care, Ms. Goyer said. They spend an average of roughly 20% of their income.
"If your parents don't have a financial backstop already, you know it'll fall onto you," Ms. Toland said.
Millennials already experience considerable financial pressure as a result of things like student loans and purchasing a home, she said.
While insurers typically pitch their products as longevity protection, many haven't offered the category of "advanced life deferred annuities," whose payments kick in late in life, Ms. Toland said. In the MassMutual product, customers can choose for income to begin when a parent is between 91 and 100 years old, which Ms. Toland believes is the longest-dated one on the market.
Such annuities whose payments are deferred to an advanced age typically pay out much larger sums than other types of annuities, because many of the other customers will have died before receiving income. So the lucky few who receive the payments get larger payouts as a result.
The Treasury Department tried spurring interest in so-called longevity annuities in 2014 by changing the tax code to create qualified longevity annuity contracts, known as QLACs. However, there hasn't been much uptake aside from wealthy Americans using QLACs as a way to defer paying tax, Ms. Toland said.

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