 |
Committee
Of Annuity
Insurers
Survey Of Owners Of Non-Qualified
Annuity Contracts, August 1997
©The Gallup Organization
August 22, 1997
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Table Of Contents
Introduction
In February 1997, The Gallup Organization
("Gallup") surveyed 1,361 owners of non-qualified annuity
contracts for the Committee of Annuity Insurers, a diverse group
of life insurance companies that issue annuity contracts. The
results of the 1997 Survey Of Owners Of Non-Qualified Annuity
Contracts (the "1997 Survey") are presented in this
report. Mathew Greenwald & Associates, Inc. ("Greenwald
& Associates") consulted with the Committee of Annuity
Insurers on this project. This is the fifth time that this Survey
has been conducted. In February 1992, October 1993, December
1994, and December 1995, over 1,000 owners of non-qualified annuity
contracts were interviewed by Gallup. Findings from the five
Surveys are compared in this report where applicable.
The principal purpose of the Surveys was to
obtain a profile of the demographic characteristics of owners
of non-qualified annuity contracts. Questions on owners' opinions
on saving for retirement, sources of funds for purchasing annuity
contracts, and reasons for purchasing annuities also were included.
The questionnaires used in all five Surveys were developed by
Greenwald & Associates, Gallup, and the Committee of Annuity
Insurers. The 1997 Survey contains many of the same questions
asked in previous Surveys.
To ensure that only owners of non-qualified
annuity contracts were interviewed in this Survey, 33 life insurance
companies provided the names of individuals who currently own
non-qualified annuity contracts (i.e., annuity contracts
purchased with after-tax dollars). The companies used specific
sampling procedures developed by Gallup and Greenwald & Associates
to ensure that a representative sample of owners of non-qualified
annuity contracts was identified. The 33 companies are geographically
diverse, represent a mix of large and small companies, and account
for nearly five million non-qualified annuity contracts currently
in force. They also represent a mix of the main systems for distributing
annuities.
The people interviewed were selected at random
by Gallup from the files of the 33 companies. It is Gallup's
view (based on the sampling procedures used and other research
that Gallup has conducted in this area) that the results of this
Survey represent the characteristics of owners of non-qualified
annuity contracts, with a sampling error of plus or minus 3 percentage
points, at the 95 percent confidence level.
1997
Survey Summary
Overall, there is little change in the results of the 1997 Survey
compared with the results of the previous Surveys. The demographic
characteristics, opinions on saving for retirement, sources of
funds for purchasing annuities, and reasons for purchasing annuities
are nearly identical to those found in previous Surveys. As expected,
the findings of 1997 Survey are little different from the results
of the 1995 Survey.
Demographic Profile
- Most owners of non-qualified
annuity contracts have moderate annual household incomes. More
than 80 percent have total annual household incomes under $75,000.
- The average age of owners
of non-qualified annuity contracts is 66. There are slightly
more female (55%) than male (45%) owners of non-qualified annuity
contracts.
- Almost 60 percent of owners
of non-qualified annuity contracts are retired, while 25 percent
are employed full-time.
- Almost one-third of owners
of non-qualified annuity contracts did not attend college. Two
in five are college graduates.
- Nearly six in ten owners
of non-qualified annuity contracts are married, while 28 percent
are widowed.
- Half (51%) of owners of
non-qualified annuity contracts are currently vested or eligible
to receive a pension from their current or former employers.
Saving
For Retirement
- Eight in ten (82%) owners
of non-qualified annuity contracts believe that people in the
United States do not save enough money for retirement. Seventy-eight
percent believe that the government should give tax incentives
to encourage people to save.
Preparing
Financially For Retirement
- Nine out of ten owners
of non-qualified annuity contracts believe that they have done
a very good job of saving for retirement. However, many express
concern that the costs of a catastrophic illness or nursing home
care might bankrupt them (54%), that they might run out of money
during retirement (42%), or that their spouse may not have enough
savings to make ends meet if the owner predeceases the spouse.
Uses
Of Annuity Savings
- Owners of non-qualified
annuity contracts are most likely to say that they will use their
annuity savings for retirement (85%), to give them financial
resources so that they will not be a financial burden to their
children in their later years (84%), and to have as part of an
estate that will be passed on to children or grandchildren, if
they do not need it (82%).
- Three quarters of owners
of non-qualified annuity contracts purchased an annuity to cover
the expense of unpredictable events such as a catastrophic illness
or the need for nursing home care.
Attributes Of Annuity Contracts
- Nearly all owners of non-qualified
annuity contracts agree that keeping the current tax treatment
of annuities is a good way to encourage long-term savings (93%)
and that annuities are an effective way to save for retirement
(93%).
Profile
Of Owners Of Non-Qualified Annuity Contracts
Typical
Owner Of Non-Qualified Annuity Contract
The typical owner of a non-qualified annuity contract is at least
a high school graduate, has a moderate annual household income,
and is slightly more likely to be female than male. The average
age of owners of non-qualified annuity contracts is 66. Twenty-three
percent of owners of non-qualified annuity contracts currently
are receiving regular payouts from their annuity contracts.
Income
Over 80 percent of owners of non-qualified annuity contracts
have household incomes under $75,000. Nearly two-thirds have
annual household incomes below $50,000 (63%). Almost half have
household incomes below $40,000 (47%) and 15 percent have annual
household incomes of less than $20,000. Just 9 percent have annual
household incomes of $100,000 or more. As shown in Figure 1,
these findings are consistent with the findings of previous Surveys.
Age
The average age of owners of non-qualified annuity contracts
is 66. Four in ten owners of non-qualified annuity contracts
are age 72 or older (40%). This represents an increase in owners
in that age bracket compared with previous Surveys. Approximately
one in five owners of non-qualified annuity contracts is under
age 54 (17%), between age 54 and age 63 (19%), or between age
64 and age 71 (24%).
Employment
Status
As was true in previous Surveys, many owners of non-qualified
annuity contracts are retired (59%). Twenty-five percent are
employed full-time while another 7 percent are employed part-time.
Most of the spouses of owners of non-qualified annuity contracts
also are retired (55%). One in five (23%) is employed full-time,
while a few (7%) are employed part-time.
Education
Owners of non-qualified annuity contracts have diverse educational
backgrounds. Three in five owners of non-qualified annuity contracts
are not college graduates (57%). These findings are similar to
the findings of previous Surveys.
Gender
Owners of non-qualified annuity contracts are slightly more likely
to be female (55%) than male (45%). There has been an increase
in the percentage of female owners since 1992.
Marital
Status
A majority of owners of non-qualified annuity contracts are married
(55%) -- down slightly from previous Surveys. Three in ten owners
of non-qualified annuity contracts are widowed (28%) -- up slightly
from previous Surveys. Only one in ten owners of non-qualified
annuity contracts is single (10%).
Family
Situation
One in ten owners of non-qualified annuity contracts has adult
children living in their home (11%), while almost two in ten
(18%) currently are helping adult children to pay for higher
education or a house. While the average age of owners of non-qualified
annuity contracts has increased since 1992, almost one in ten
owners of non-qualified annuity contracts (7%) has elderly parents
that they or their spouse currently are supporting financially
or expect to support in the future. As might be expected, most
owners of non-qualified annuity contracts who are supporting
elderly parents (74%) are under age 64.
Survey
Findings
Saving For Retirement
Eight in ten owners of non-qualified annuity contracts (82%)
believe that people in the United States do not save enough money
for retirement. This proportion is similar to that found in previous
Surveys.
A very large majority of owners of non-qualified annuity contracts
believe that the government should give tax incentives to encourage
people to save (78%). Of note, younger owners of non-qualified
annuity contracts (under age 64) are more likely than those who
are older to believe that the government should give incentives
to encourage people to save.
Eighty-four percent of owners of non-qualified annuity contracts
report that they have saved more money than they would have if
the tax advantages of an annuity contract were not available.
Ninety-one percent report that they try not to withdraw any money
from their annuity contract before they retire because they would
have to pay tax on the money withdrawn from an annuity contract.
Only 15 percent of owners who are not receiving regular payouts
from their annuity contracts report having withdrawn money from
their annuity contract. Twenty-three percent of owners of non-qualified
annuity contracts currently are receiving regular payouts from
their annuity contracts.
Preparing Financially For
Retirement
While most owners of non-qualified annuity contracts are confident
that they have done a very good job of preparing financially
for retirement, many express concern about running out of money
during retirement and about their ability to cover the costs
of a catastrophic illness or nursing home care. These findings
are similar to the findings of previous Surveys.
As shown in Table 1, 89 percent of owners of non-qualified annuity
contracts believe that the statement "you have done a very
good job of preparing financially for retirement" describes
them "very" well or "somewhat" well. Nevertheless,
more than half of owners of non-qualified annuity contracts (54%)
express concern about being able to cover the costs of a catastrophic
illness or nursing home care. Four in ten are concerned about
running out of money during retirement (42%) -- a high proportion,
but less than in previous Surveys -- or that their surviving
spouse may not have enough money to make ends meet (38%). About
three in ten owners of non-qualified annuity contracts believe
that they (or their spouse) are at a high risk of suffering a
catastrophic medical condition in old age (31%), or that they
(or their spouse) are at a high risk of needing to be confined
to a nursing home in old age (24%). Three in ten owners of non-
qualified annuity contracts also worry about being able to manage
their resources to make ends meet in retirement (31%). This is
due, no doubt, to the complexity of dealing with all of the uncertainties
of retirement finances, such as the uncertain timing of death.
Table 1:
Agreement With Various Statements About Preparedness For Retirement |
|
|
|
|
|
|
1992 |
1993 |
1994 |
1995 |
1997 |
|
(Percentages) |
|
They have done a very good
job of saving for retirement. |
84 |
87 |
88 |
86 |
89 |
|
They are concerned that a
catastrophic illness or nursing home care might bankrupt them
during retirement. |
66 |
63 |
62 |
59 |
54 |
|
They are concerned that they
might run out of money during retirement. |
52 |
53 |
54 |
53 |
42 |
|
Upon the death of the owner,
the surviving spouse may not have enough savings to make ends
meet. |
* |
* |
* |
* |
38 |
|
It will be difficult to manage
their money in retirement. |
* |
* |
* |
* |
31 |
|
They (or their spouse) are
at a high risk of suffering a catastrophic medical condition
in old age. |
* |
* |
* |
* |
31 |
|
They (or their spouse) are
at a high risk of needing to be confined to a nursing home in
old age. |
* |
* |
* |
* |
24 |
|
* = not asked |
Savings
Of Owners Of Non-Qualified Annuity Contracts
Half (51%) of owners of non-qualified annuity contracts are vested
or eligible to receive a pension from their current or former
employers, and only 43 percent of the pension plans in which
owners of non-qualified annuity contracts are vested or from
which owners of non- qualified annuity contracts are eligible
to receive pensions have a cost-of-living adjustment feature.
Half (52%) of owners of non-qualified annuity contracts (or their
spouses) who are employed full-time participate in an employer-sponsored
pension plan in which the participant selects investment options
for the account (like a section 401(k) plan), while 32 percent
participate in another type of employer-sponsored pension plan.
As shown in Figure 8, nearly half of owners of non-qualified
annuity contracts (45%) do not feel that the money they will
receive from pensions and other employment-related retirement
programs (including Social Security) will be enough to take care
of their financial needs in retirement. A little more than one-third
of owners of non-qualified annuity contracts believe that it
will be enough (36%), while just 6 percent say that it will be
more than enough.
Owners of non-qualified annuity contracts who are under age 54
appear more concerned that money from pension and retirement
plans (including Social Security) will not be enough to take
care of all of their financial needs in retirement. Six in ten
owners of non-qualified annuity contracts who are under age 54
do not believe that money from pension and retirement plans will
be enough (59%). (See Figure 9.)
Approximately four in ten owners of non-qualified annuity contracts
report that the current value of all of the non-qualified annuity
contracts that they or their spouse own is between $25,000 and
$100,000 (38%). Fifteen percent of owners of non-qualified annuity
contracts say that the value is under $25,000, while three in
ten say that it is over $100,000 (28%). These percentages are
nearly the same as those found in previous Surveys.
Three in ten owners of non-qualified annuity contracts say that
they plan to make additional contributions to an annuity contract
that they currently own (27%). One in ten owners of non-qualified
annuity contracts plans to purchase another annuity contract
in the near future (13%).
In an open-ended question, owners of non-qualified annuity contracts
reported that they talked to a variety of different people when
making the decision to purchase an annuity contract.
Owners of non-qualified annuity contracts also save in a number
of other financial products.
Uses Of Annuity Savings
In an open-ended question, owners of non-qualified annuity contracts
were asked to name the primary uses that they intend to make
of their annuity savings. Of the many uses given, owners of non-qualified
annuity contracts are most likely to say that they intend to
use the savings for retirement income (52%), followed by to pay
for daily living expenses (11%) and/or for an inheritance for
their children if not otherwise needed (11%). (Of course, for
owners of non-qualified annuity contracts who already are retired,
daily living expenses are retirement expenses.)
Owners of non-qualified annuity contracts were asked in a separate
question if they intended to use their annuity savings in any
of five specific ways. As shown in Figure 12, eight in ten owners
of non-qualified annuity contracts stated that they plan on using
their annuity savings for the following aspects of retirement:
for retirement income (85%), to avoid being a financial burden
on their children (84%), or to have as part of an estate to be
passed on to children or grandchildren, if not otherwise needed
(82%). Another leading use of annuity savings identified is as
an emergency fund, in case of a catastrophic illness or the need
for nursing home care (76%).
Older people appear to be concerned about unpredictable events
that can have severely adverse financial consequences, such as
a catastrophic illness or the need for nursing home care. One
of the ways that they deal with these possibilities is saving
through non-qualified annuity contracts, which build in value
until needed. The fact that a high proportion believe that some
of their non-qualified annuity savings may be part of their estates
is, no doubt, a reflection of the fact that if the event they
fear does not occur, then some of their annuity savings will
be left for their heirs.
Age influences how owners of non-qualified annuity contracts
intend to use their annuity savings. For example, older owners
of non-qualified annuity contracts (those age 72 and older) are
more likely to indicate that they will use their savings in case
of a catastrophic illness.
Reasons
For Purchasing Annuities
In an open-ended question regarding their reasons for purchasing
an annuity contract, a plurality of owners of non-qualified annuity
contracts (26%) reported that they purchased their annuity contracts
to provide retirement income. Just 14 percent reported that tax
savings had been their motivation. Nevertheless, the fact that
earnings on annuity savings are not taxed until the savings are
used is a strong motivation for purchasing a non-qualified annuity.
When asked whether any of a list of specific reasons for purchasing
an annuity contract were true for them, close to three-fourths
of owners of non-qualified annuity contracts say that the tax
treatment of annuity contracts was a "very" important
reason that they purchased a non-qualified annuity (73%). As
shown in Table 2, large numbers also indicate that "very"
important reasons for purchasing an annuity were that it is a
safe purchase (61%) and that it has a good rate of return (55%).
The levels of importance that owners of non-qualified annuity
contracts place on the various reasons for buying an annuity
contract are very similar to those found in previous Surveys.
Approximately half of owners of non-qualified annuity contracts
report the following as "very" important reasons for
purchasing a non-qualified annuity: they wanted a long-term savings
plan (51%), they could get income guaranteed for life (49%),
and they wanted a source of funds for emergencies (49%). Slightly
fewer report that it provides money in case they or their spouse
need to enter a nursing home (42%), that it was an easy way to
save (41%), and that they have a choice of methods of receiving
payments from their annuity savings (39%). Three in ten owners
of non-qualified annuity contracts say that having a choice of
methods of receiving payments from their annuity savings was
"somewhat" important (32%).
Of note, household income also plays some role in determining
the reasons that owners of non-qualified annuity contracts have
purchased annuities. For example, owners of non-qualified annuity
contracts with household incomes of less than $75,000 are more
likely to say that they purchased an annuity contract because
they had a choice of methods of getting the money and it was
a safe purchase. Additionally, owners of non-qualified annuity
contracts who did not attend college are more likely to have
purchased annuity contracts because they are an easy way to save,
and they offer choices of methods of receiving income. These
findings are consistent with the findings of previous Surveys.
Table 2:
Importance Of Various Reasons For Buying An Annuity |
|
Very Important
Somewhat
Important |
|
1992 |
1993 |
1994 |
1995 |
1997 |
1992 |
1993 |
1994 |
1995 |
1997 |
|
(Percentages) |
|
Earnings would not be taxed
until the funds were used. |
77 |
75 |
74 |
72 |
73 |
18 |
18 |
18 |
20 |
17 |
|
Was a safe purchase. |
68 |
65 |
63 |
64 |
61 |
27 |
27 |
30 |
28 |
29 |
|
Had a good rate of return. |
60 |
60 |
58 |
57 |
55 |
31 |
30 |
33 |
32 |
31 |
|
Wanted a long-term savings
plan. |
59 |
57 |
57 |
52 |
51 |
26 |
26 |
27 |
29 |
27 |
|
Could get an income guaranteed
for life. |
49 |
49 |
49 |
51 |
49 |
25 |
27 |
25 |
25 |
24 |
|
Wanted a source of funds that
could be used to pay for emergencies, such as catastrophic illness
during retirement. |
46 |
46 |
46 |
47 |
49 |
25 |
28 |
29 |
27 |
29 |
|
Easy way to save. |
46 |
44 |
44 |
44 |
41 |
32 |
31 |
34 |
32 |
35 |
|
Have a choice of methods of
getting the money. |
39 |
37 |
36 |
39 |
39 |
30 |
31 |
33 |
30 |
32 |
|
It provides money in case
owner or spouse needs to enter a nursing home. |
* |
* |
* |
* |
42 |
* |
* |
* |
* |
30 |
|
* = not asked |
Sources
Of Funds For Annuities
Owners of non-qualified annuity contracts use more than one source
of funds for the purchase of their annuities. Many owners of
non-qualified annuity contracts buy annuity contracts with the
proceeds from "one-time" events such as an inheritance
(24%), the sale of a home, farm, or business (18%), a death benefit
from a life insurance policy (14%), a gift from a relative (14%),
or a bonus (12%). Overall, about half of owners of non-qualified
annuity contracts (51%) say that they have used money from at
least one of these one-time events to buy a non-qualified annuity.
As shown in Table 3, many owners of non-qualified annuity contracts
also indicate that some of their annuity premiums have come from
their regular savings (65%), current income (53%), and proceeds
from an investment (31%). The sources of funds that owners of
non-qualified annuity contracts use to purchase annuities are,
for the most part, unchanged over the five year period covered
by the Surveys.
Age and marital status play a role in determining sources of
funds for many owners of non-qualified annuity contracts. Owners
of non-qualified annuity contracts who are age 64 and over are
more likely to have used money from the sale of a family home,
farm, or business, or from proceeds from another investment,
and less likely to have used money from current income or a bonus.
Those not married are more likely to have used money from a death
benefit and less likely to say that they have used an inheritance
or the proceeds from an investment to purchase annuities.
Table 3:
Sources Of Funds For Owners' Annuities |
|
1992 |
1993 |
1994 |
1995 |
1997 |
|
(Percentages) |
|
Regular savings |
62 |
66 |
66 |
62 |
65 |
|
Current income |
57 |
55 |
57 |
51 |
53 |
|
Proceeds from an investment |
44 |
35 |
38 |
35 |
31 |
|
An inheritance |
20 |
23 |
22 |
22 |
24 |
|
Sale of family home, farm,
or business |
16 |
14 |
16 |
16 |
18 |
|
Death benefit from a life
insurance policy |
15 |
15 |
12 |
14 |
14 |
|
Gift from a relative |
11 |
11 |
9 |
10 |
14 |
|
A bonus |
11 |
12 |
11 |
11 |
12 |
Attributes
Of Annuities
Nearly all owners of non-qualified annuity contracts agree "completely"
or "somewhat" that "keeping the tax advantage
of annuities is a good way of encouraging long-term savings"
(93%), that "annuities are an effective way to save for
retirement" (93%), that "annuities are secure and safe"
(90%), and that "annuities are a good way to ensure your
[surviving] spouse has a continuing income" (90%). (See
Table 4.)
Very large proportions of owners of non-qualified annuity contracts
agree "completely" or "somewhat" that annuities
"have attractive tax treatment" (88%), "are an
effective way of assuring money is available to pay for a catastrophic
illness or nursing home care" (86%), "are a good source
of emergency funds in old age" (85%), "offer a good
return" (85%), "will prevent them from being a financial
burden on their children in their later years" (83%), and
"are an important source of retirement security" (81%).
Table 4:
Agreement With Various Statements About Attributes Of Annuities |
|
1992 |
1993 |
1994 |
1995 |
1997 |
|
(Percentages) |
|
Keeping the tax advantage
of annuities is a good way of encouraging long-term savings. |
96 |
95 |
95 |
92 |
93 |
|
Annuities are an effective
way to save for retirement. |
95 |
95 |
94 |
93 |
93 |
|
Annuities are secure and safe. |
85 |
88 |
86 |
87 |
90 |
|
Annuities are a good way to
ensure their surviving spouse has a continuing income. |
* |
* |
* |
* |
90 |
|
Annuities have attractive
tax treatment. |
92 |
89 |
87 |
84 |
88 |
|
Annuities are an effective
way of assuring money is available to pay for a catastrophic
illness or nursing home care. |
* |
* |
* |
* |
86 |
|
Annuities offer a good return. |
90 |
87 |
86 |
87 |
85 |
|
Annuities are a good source
of emergency funds in old age. |
89 |
85 |
88 |
87 |
85 |
|
Annuities will prevent them
from becoming a financial burden on their children in their later
years. |
80 |
78 |
81 |
80 |
83 |
|
Annuities are an important
source of retirement security. |
87 |
83 |
85 |
84 |
81 |
|
* = not asked |
© The Gallup Organization |
