CANNEX (www.cannex.com) is a Toronto-based company that provides a popular platform for learning about annuity pricing. They provide frequent reports about the types of searches being made by distribution companies and financial advisors that could potentially result in an annuity sale. Their CANNEX Survey Experience covering 2018 provides a lot of insight about the types of single premium immediate annuities and deferred income annuities that are popular in the US market. Here are some insights from this report.
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The average age for when the premium will be paid on quotes generated for primary annuitants is 66.6. By gender, it is 67.6 for females and 66.0 for males. For primary annuitants, 1.73 percent are age 45 or less, while 3.63 percent are over age 85. When we look further at immediate or deferred annuities, the average age for primary annuitants looking at immediate annuities is 68.5. It is 61.5 for those considering deferred annuities (income begins at least 13 months later).
73 percent of quotes will have payments begin within one year (immediate annuities), while the other 27 percent of quotes have income begin in more than one year. For deferred income annuities, the length of the deferral period is relatively evenly distributed from one year to more than twenty years. We can note that longevity insurance is not a particularly popular annuity use, as only 6.2 percent have deferral periods in excess of ten years, and only 1.8 percent of quotes have deferral periods in excess of 15 years.
For joint annuities, 93.6 percent have a nonreducing payment upon the death of the first annuitant. This is a joint and 100 percent survivors benefit annuity. For the small remaining percentage, about half of the remainder will have the annuity payment reduce by 50 percent upon either the first death or the death of the person identified as the primary annuitant.
As for the annuity flavor, the most popular option is to include a cash refund provision (47 percent) in the event of an early death. The next most popular option is life with ten years of certain payments (16.6 percent), followed by a life-only guarantee (14.4 percent). Other period-certain options with some traction include five years (6.1 percent) and twenty years (4.8 percent). The installment refund accounts for 3.9 percent of quotes. The remaining 6.5 percent of quotes reflect other various period-certain options.
Nonqualified taxable accounts will be the source of annuity funds with 58 percent of quotes, while the other 42 percent of quotes are for various tax-qualified retirement plans.
Monthly payments are sought 81.5 percent of the time, with annual payments 18 percent of the time, and only 0.5 percent seek payment frequencies other than these two choices.
When a quote with a premium is provided, the average premium was $288,155 for immediate annuities and $248,755 for deferred annuities. Meanwhile, for those seeking the cost of providing a specific payment, the average annual income sought was $35,745 for immediate annuities and $36,670 for deferred annuities.
As for fixed or growing payments, 95.7 percent of quotes are for fixed payments. Only 0.2 percent of quotes are for CPI-adjusted income annuities, while 4.1 percent include different COLA options. The most popular COLA options are 2 percent (1.9 percent of quotes) and three percent (1.3 percent of quotes).
Putting this all together to create a baseline scenario for our income annuity discussions, a few ideas that we can gain from the CANNEX survey include that sixty-five is a reasonable age to consider an annuity, joint annuities should have nonreducing benefits, cash refund and life-only income annuities are both viable options, the majority will buy an annuity with taxable assets, both immediate and deferred income annuities are popular in practice, and fixed-income annuities without COLAs or other income growth are by far the most commonly used choice.
This is an excerpt from Wade Pfau’s book, Safety-First Retirement Planning: An Integrated Approach for a Worry-Free Retirement. (The Retirement Researcher’s Guide Series), available now on Amazon
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