High Income Earners Confused by Annuities

May 29, 2001 (PLANSPONSOR.com) - Although retirement planning is the primary financial planning concern for most US professionals, many remain confused by variable and fixed annuities, a new survey shows.

The 2001 Nationwide Financial High Income Survey by Nationwide Financial, a provider of retirement products, polled 500 people younger than 60 with annual incomes greater than $150,000 per year, a sample that included medical doctors, attorneys, corporate executives, small business owners and high-tech executives.

The study showed that although more than half of the affluent professionals surveyed said the top reason they began financial planning is that they were unsure they were properly preparing for retirement, many admitted to being unclear on variable life insurance and investment products with protection features.

Vague Knowledge

Results show that:

  • some 58% claimed to possess a good understanding of equity investments;
  • almost two-thirds cited a solid knowledge of mutual funds;
  • however, less than one in five reported a sound understanding of variable universal life insurance, variable annuities or long-term care insurance;
  • slightly less than a third reported a high level of knowledge of fixed income products; and
  • just over a third possessed a good understanding of whole life insurance.

An analysis of the results also shows that:

  • almost three quarters of respondents reported a good understanding of their 401(k) plan;
  • but only one in 10 reported a positive perception of these plans;
  • only 18% reported a sound comprehension of variable annuities, less than a quarter reported a positive perception of this product;
  • two-thirds of respondents want assistance in passing on assets to heirs with minimal tax burdens, yet only 18% possessed a good understanding of the product and the same low number perceived the product in a positive light.

Track Record Matters Most

Some 71% of professionals reported that planning for income management in retirement was a key service provided by a financial planner and listed the following as important characteristics of an investment professional:

  • a proven track recorded was cited by one in 10 respondents;
  • financial planning certification was cited by 80%;
  • some 80% said that a recommendation by a trusted source was important;
  • while 78% of respondents wanted a variety of investment options.

Over 80% of the sample expressed a high level of trust in their advisers, although 60% said that they check the advice they receive.