MassMutual has a
new annuity designed for customers who fear they'll have to help cash-strapped
parents in later life
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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