Most people contemplating retirement want guaranteed income for life. Those who want more guaranteed income than Social Security provides can get it by purchasing an annuity—that is, an insurance-backed product that promises guaranteed income for life. The word “annuity” means “a sum of money payable yearly or at other regular intervals.”
Yet when people were asked if they would give up a portion of their 401(k) savings for either: 1) guaranteed income for life, or 2) an annuity, most opted for the guaranteed income. For whatever reason the same product, when framed as an “annuity” holds less appeal than when it is described as “guaranteed income.”
This experiment by Morningstar suggests that when talking to clients about annuities, advisors might describe them in terms of what they provide—guaranteed income for life—instead of their actual name.