The average age of a primary annuitant for income annuities has dropped to 65.6 years old in 2016 from 66.6 years old in 2015, according to a widely used annuity quoting service.
Younger clients are purchasing guaranteed income streams before retirement as defined benefit pensions continue to disappear, said Gary Baker, president of Cannex USA, which advisors rely on for annuity quotes.
“The item that jumped out at me in the report is that the average age of the client is going down and that’s because there’s more deferred income annuities being sold than in the past,” Baker said.
“There’s been a gradual shift from single premium immediate annuities (SPIA) to deferred income annuities (DIA) over the last five years.”
The ratio between a SPIA versus a DIA has roughly moved from 75 percent/25 percent in 2014, to 70/30 in 2015, to 65/35 last year, he said.
The average age of a joint annuitant for income annuities also dropped to 63.1 years old last year from 64 years old in 2015, the report found.
The Cannex Survey Experience report reflects what products and features are being quoted by agents that subscribe to the Cannex pricing engine, not what has been sold.
Still, the data from Cannex USA, a subsidiary of Cannex Financial Exchanges in Toronto, serves as a useful proxy for quarterly and annual distributor activity in the U.S. market.
The data used in the Cannex USA survey is compiled from nearly 1.25 million SPIA and DIA quotations from advisors and agents associated with banks, broker-dealers and independent marketing organizations during 2016.
DIA Buyers Younger than SPIA Buyers
The average age of a SPIA buyer is approximately 69-70 years old, which accounts for the fact that buyers typically want to purchase a contract before minimum distribution requirements from retirement accounts kick in at 70.5 years old, Baker said.
The average age of a DIA contract buyer is 59-60 years old, the data show.
A monthly payout frequency remains the most popular payment interval by far with 87.4 percent of quotes tied to that cycle in 2016, a slight increase from the 86.7 percent in 2015.
DIAs are being positioned to younger buyers as a means to establish their own pension in pre-retirement, Baker explained.
“That overall mix between the qualified and nonqualified may be changing too because of the dynamics between SPIA and DIA,” he said.
Another eye-opener in this year’s report was the big jump in the percentage of quotes that did not request an annuity rating from an insurance rating agency.
No rating was requested in 49.3 percent of the income annuity quotes last year, an increase from 41.3 percent in 2015. The display of ratings data is often controlled at the distributor level and not at the retail advisor level.
When a rating is used, agents overwhelmingly use ratings supplied by A.M. Best and Standard & Poor’s over Fitch Ratings and Moody’s, the survey found.
New Jersey Leads in Quotes
More income annuity quotes in 2016 came from New Jersey – 152,680 – than from any other state, according to the Cannex USA survey. The data is surprising since states such as Florida and California have much higher overall populations
Data show that 12.2 percent of all quotes came from New Jersey, compared with 9.5 percent from Florida and 8.86 percent from California.
The reasons so many quotes come from New Jersey, with a population of 9 million, could be because of the concentration of financial advisors living and working there, Baker said.
The New York metropolitan area has by far the highest employment level of financial advisors in the U.S., according to the Bureau of Labor Statistics.
In the southern part of New Jersey financial advisors serve people living in and around Philadelphia, still a wealthy market by nationwide standards even if not as large or as wealthy as New York.
That makes New Jersey a unique demographic when it comes to wealth concentration and the number of advisors catering to that wealth.
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