The way people approach investing for retirement has recently undergone a significant shift. Factors such as artificially low interest rates, recent bank failures, and concerns about unexpected inflation have made investors more cautious, resulting in higher interest in annuities, which provide a stable income during retirement.
According to LIMRA, sales of annuities in the first quarter of 2023 reached $92.9 billion, a 47% increase compared to the same period in 2022. Investors are now seeking a balance between protection and growth. Annuities are very popular because they are a great option for guaranteed monthly income, but some think they lack essential aspects for many investors, such as market growth, strong inflation protection, and estate benefit.
In fact, one of the key client declination reasons for annuities (annuities experts tell me that no more than 1 or 2 quotes out of 10 are bound) is the fact that after 10-15 years of payments, the cash value to the estate in case of death of the annuitants goes down to zero. While that makes sense for an insurance company, many clients prefer to maximize wealth transfer to their family and decide to self-manage decumulation using the 4% rule or similar instead of an annuity.
The key to supplementing annuities is to find an instrument that provides complementary benefits where annuities fall short. The ideal financial instrument combined with an annuity should help investors achieve regular guaranteed income, long-term inflation protection, and preservation of cash value. This union provides the “best of both worlds” for those seeking a secure and growth-oriented retirement strategy.
Savvly can annuitants and estates over time
Savvly is a financial technology company that provides a retirement solution that acts as a "personal pension" for late-life financial security. The pension is built around a pension pool comprised of many investors and their contributions. Pooled monies are invested in a low-cost, market-tracking ETF. The market determines pool performance, and growth is returned over time. At payout age, typically after 75, investors receive their share of the pooled fund’s value at that moment. Scheduled payouts can be timed to replenish their cash account to finance the later phases of their lives. Investors agree in advance that if they pass away or withdraw before reaching their payout age, they or their estate receive most of their original contribution. However, their market gains remain in the pool and are reallocated to those investors still in it. This mechanism allows the payout to exceed the market return on the ETF.
Annuities are renowned for their ability to provide guaranteed income. Yet, over time, their value may grow slower than the market due to their hedging against market drops. However, by allocating just 5-10% of the amount they invested in an annuity into Savvly, investors can gain exposure to market growth while still benefiting from the steady and reliable income generated by an annuity. Think about $1 into Savvly for every $10 in an annuity.
Approximate impact of $1 in Savvly for every $10 in annuities
Savvly is a valuable tool for long-term inflation protection, complementing annuities' typically limited inflation safeguards. Another notable advantage of combining an annuity with Savvly is the aspect of estate protection. As we mentioned earlier, many individuals hesitate to invest in annuities because they worry their beneficiaries will not receive a financial reward from this large investment when they die. Adding Savvly, the longer investors stay in the pension pool, the greater the value of their shares – and the more available for their heirs. Suppose they pass away before their payout age. In that case, their beneficiaries still receive more of their original investment (the $1 out of $10 invested in the annuity) with each passing year they’ve been with Savvly, on top of any residual cash value of the annuity.
Another benefit of the Savvly personal pension is its “long-term cash” aspect. We all know that nursing homes and healthcare costs are correlated with aging. Most people can’t afford annuities that pay $10K+ per month in today’s money when they are towards the latest stage of their life, say 80s or 90s. Therefore, in general, annuities are not a comprehensive product to protect against these types of unfortunate circumstances. Some insurance producers and advisors would argue that long-term care insurance is the solution, but as we know, 35-45% of people can’t access it due to age or health conditions.
With the addition of Savvly’s personal pension, clients have access to long-term cash, even when they don’t get sick. They can use that money to pay for healthcare expenses, or just leave a financial legacy to their grandchildren.
At Savvly, we believe that people interested in achieving a long-term investment goal should have at least a small portion of their investment in well-diversified equities. Why? Because historically, equities have mitigated the inflation risk over time better than other investments.
In summary, combining Savvly with an annuity creates a new and unique value proposition. It can give clients the highest level of security: they can enjoy guaranteed income and material cash in their later years.
Would you be interested in learning more? Are you an insurance producer and interested in increasing your annuity bind rate? Are you a financial advisor or an investor who wants guaranteed income and long-term protection? We'd love to talk. Book a meeting with us at email@example.com.