‘Guaranteed income’ preferred over ‘annuities’
LOW USE
The first guaranteed income products appeared as early as 1700 B.C. in Egypt, “predating the birth of the insurance company by thousands of years,” Jasmin Sethi, associate director of policy research at Morningstar, wrote in a separate recent report.
Despite that lengthy history, less than 5% of people in U.S. households own annuities, and the products are included as options in anywhere from 1.5% to 10% of employer-sponsored retirement plans, the report noted. A clearer estimate is difficult because of the variation in reporting requirements.
“They’ve had a lot of historical issues with fraud, which has not totally gone away, although they are more regulated than they have been in the past,” Sethi said during Tuesday’s presentation. “Annuities are not used very much today.”
However, the guaranteed income they provide has the potential to make people happier, Sethi said.
“People like to know how much they can spend. They like to not have to guess,” she said. “People also have a very hard time dealing with longevity risk.”
What keeps some people from opting for annuities are complexity and a lack of transparency, both of which make it difficult to compare products, Sethi said.