As consumers retire, they tend to seek as much financial security and stability as possible during their retirement years. These years are meant to be marked by relaxation and ease. One of the first steps in ensuring this is for consumers to make sure that they have established financial security for themselves. For most, this means investing in some kind of annuity.
For elders, it seems that the choice for investment has stayed consistent. It seems that as elders age out of their working lives, they choose not to invest in change, risk, or any new kind of annuity. Rather, elders are holding fast in their investments in Conventional Annuities. These conventional annuities are known for being safe and easy to understand. They are also known for being guaranteed, leaving little risk for seniors as they look forward to enjoying their retirement.
Variable annuities are fairly new to the scene and offer more exciting options than their conventional counterparts. However, these options are seemingly unimpressive to elders and those on the verge of their retirement. There are both advantages and disadvantages to variable annuities. For elders, it seems that the disadvantages and risks far outweigh the potential advantages. There are several options with variable annuities, but these exact options are what can often be construed as more confusing than the generic options offered with conventional annuities.
While there are several advantages to variable annuities, there are also several potential disadvantages. Variable annuities are new to the market in the UK and for the most part, they mirror the investments of the US. It is the disadvantages and newness that are prompting elders and those nearing retirement to stick with conventional annuities for their retirement needs. Variable annuities often come with some kind of expense, mostly an explicit one related to any guarantees on the investment.
There may also be what is called an “opportunity cost” for not enjoying the full value of the investment growth. Many elders may also view the charges and early surrender values as prohibitive to purchasing a variable annuity. It is also the case that many required hurdle rates might not be achieved, meaning that income may reduce in the future. For many, both variable and conventional annuities have disadvantages and advantages. For elders, it seems that the disadvantages outweigh the advantages. Conventional annuities are seemingly the consistent choice for those closest to retirement age.