MassMutual Head of Annuity Distribution Matt DiGangi recently sat down with VettaFi to discuss the increasing demand he is seeing for annuities, and how MassMutual has sought to meet client investor needs.
LIMRA released a report that finds U.S. annuity sales have set a record for the first half of 2024. To what do you attribute this?
There are several factors driving the increase in annuity sales. First, regarding demographic trends, baby boomers are retiring. In addition, the industry has done a good job integrating annuity solutions into the retirement income planning process and into tools that advisors use with clients. That makes it more seamless as a solution within a larger overall financial portfolio. The last piece is consumer education and awareness — which have definitely gone up — about the value that annuity solutions can provide.
Tell us a little bit about annuities and what they deliver to investors. What are the different types?
Overall, annuities offer dependable growth for investors. The variations are tied to the level of market exposure an investor wants to build into the annuity. depending on where they are in their financial life cycle. To understand the right annuity for a client, it’s important to understand their individual needs, their time horizons, and their risk tolerance to help find the most appropriate fit for them. Let’s look at the options.
- For clients who are in or near retirement, there are immediate income annuities. These have a single premium and a predictable stream that can start now. Dependable and immediate.
- For clients looking for that dependability but can wait, deferred income annuities can provide a predictable, guaranteed income stream that begins at a time your clients choose and lasts a lifetime. Dependability for longevity.
- There’s a lot of interest in “MYGA,” or multiyear guaranteed annuities. These have a guaranteed return or interest rate for two to 10 years, depending on what a client is looking for. No downside, guaranteed returns, very safe.
- Clients looking for market upside without the risk might consider a fixed index annuity that includes downside principal protection with the potential for a return that is tied to the market, without being directly invested. Limited upside and no losses.
- For clients looking for greater upside potential, registered index-linked annuities provide more market exposure but still-limited downside, but also greater upside potential.
- For clients looking for the greatest upside potential, variable annuities allow clients to invest in the market. While that comes with risk, these solutions often come with additional optional riders to protect a client’s principal or put income protection in place, to help lock in those market gains over time.
MassMutual worked with Professor of Economics Dr. Wade Pfau to look at the guaranteed living benefit withdrawal benefits. Please talk about that research.
Variable annuities offer optional income riders that guarantee lifetime incomes. This is called a guaranteed lifetime withdrawal benefit and covers the life of the contract. For the annuity holder, there’s an additional cost for the lifetime income. The purpose of our analysis with Dr. Pfau was to help financial professionals compare the different options available in the marketplace and look at the pros and cons of the most popular designs. Ultimately, the research helped to uncover which annuity types produced the highest level of income across different situations and for the different needs they are trying to solve for.
The paper talks about the “annuity puzzle.” Would you give an overview of how you define that?
Many economists believe annuities can be helpful to retirees to help solve the problem of outliving their savings, yet many consumers are not yet utilizing annuities for guaranteed income because they do not want to give up access to their funds to create this pensionlike income. Annuities can be a very impactful piece of one’s retirement income puzzle.
This is why education about the different types of annuities, the pros and cons of each, and the options available, are crucial. There are real, tangible benefits to annuities, such as guaranteed lifetime income, and there are intangible benefits, such as providing peace of mind that you will not outlive your resources and the savings that you have accumulated.
What is a traditional, guaranteed lifetime withdrawal benefit (GLWB)?
A guaranteed lifetime withdrawal benefit (GLWB) is an optional rider that can be added to an annuity contract to limit downside risk, protect a client’s principal, or provide income protection, helping to lock in market gains over time.
The term “roll-up” refers to the growth of the benefit base at a specified rate, such as 5%. When you decide to take income, your payout is calculated by multiplying the benefit base by the roll-up amount. The traditional version of this benefit includes a roll-up feature that increases your benefit base, allowing you to take income from it, and may also offer options to capture some market growth. This feature has been available for many years.
So what is the difference between MassMutual’s RetirePay and a traditional GLWB?
With RetirePay, the design is simpler. The roll-up is embedded into the payout amount. The longer you keep the policy or the contract in force, the higher the payout amount. And then if you get market returns, you can also lock those in. Then the roll-up stacks on top of the highest anniversary value.
The question that many advisors helping their clients with is, which annuity with a GLWB will support the most retirement spending potential? Also, what should the advisor be focusing on when explaining the pros and cons to their client?
Advisors should understand what is most important to their client. What problem are they looking to solve? And what’s their risk appetite? What is their time horizon? And what are they trying to accomplish?
Then an advisor can assess the different options available against a backdrop of long-term market performance and how an income rider can capture that market performance and lock it in.
It is crucial to consider among the different options available what captures the most market performance over time and what continues to increase the income payout. At the end of the day, when you take those factors together, it is about what provides the most income guaranteed for a lifetime.
It is not a one-size-fits-all approach.
For more information about annuities, visit the MMSD website, or call the knowledgeable sales team at 1-844-697-0383. For more MMSD Thought leadership, follow MMSD on LinkedIn.
MassMutual is not affiliated with Wade Pfau and the American College of Financial Services.
MassMutual Envision (Contract Form FPVDA21 and ICC21-FPVDA in certain states, including North Carolina) is a flexible premium deferred variable annuity contract issued by Massachusetts Mutual Life Insurance Company, Springfield, MA01111-0001.
Variable annuities offered through registered representatives of MML Investors Services, LLC, Springfield, MA 01111-0001, or a broker-dealer that has a selling agreement with MML Strategic Distributors, LLC, Springfield, MA 01111-0001.
Principal Underwriters: MML Investors Services, LLC (MMLIS), Member SIPC®, and MML Strategic Distributors, LLC (MMSD), are both Members FINRA and subsidiaries of Massachusetts Mutual Life Insurance Company, Springfield, MA 01111-0001
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