Why annuities may be an attractive product for Asian Americans

Annuities are a popular product for many people. Their relative safety, insurance guarantees, tax-deferral, and other features make them attractive to many demographics. However, annuities may be especially attractive and represent a great opportunity in the Asian American community for several reasons.

A considerable opportunity

A closer look at the landscape reveals why the Asian American community could be especially receptive to annuities and why financial professionals need to be aware of the opportunity. Some relevant statistics:

• The estimated number of people identified as Asian in the United States in 2020 is about 20 million.[1]
• Asian Americans’ average income is higher than any other racial group. The average was $94,903 in 2020.[2]
• Asian Americans hold higher amounts of cash, invest more in real estate, and tend to put more in IRAs and 401(k)s than other demographics.[3]
• More than half of Asians aged 25 and older have a bachelor’s degree or more, compared with 33% of the U.S. population in the same age range.[4]

• Asian Americans have the highest life expectancy (85.6), which is 7 years more than the general population. This makes retirement planning paramount, as they may have a greater risk of outliving their retirement savings.[5]

So, there’s considerable opportunity for financial professionals to work with Asian Americans plan for their retirement. But how do annuities factor in?

Annuities and the Asian American community

There are many benefits associated with annuities, some of which are especially attractive to the Asian American community. Here’s a closer look at a few of them:

• Tax-deferral: Because Asian Americans have higher than average incomes during working years and in retirement, this is an important feature. Many Asian Americans continue to work after their retirement age and may also have income from real estate investments. Not having to pay taxes on interest earnings until they receive income payments from their annuity may help them stay in lower tax brackets, pay less tax on their social security and pay less for Medicare premiums.
• Family oriented: About a quarter of Asian Americans (27%) live in multigenerational households.[6] Many Asian Americans feel it is important to leave a legacy for their children and grandchildren. Some annuity features that may be available, such as enhanced death benefit riders,[7] offer the ability to designate specific beneficiaries, or the ability to do a non-qualified stretch, which could be an attractive option.
• Diversification and relative safety: Asian Americans are often heavily invested in real estate. They may have a need for alternative products that can add a different element to their portfolio. Fixed Index Annuities that offer growth potential without the risk of market losses may be an appropriate alternative.
• Guarantees: Many Asian Americans are conservative savers. The potential guaranteed income that annuities may generate may help provide some level of assurance. Annuities may be able to help provide a retirement income base that they can’t outlive.

• Income flexibility: With an annuitization option or a Single Premium Immediate Annuity, it is possible to receive guaranteed lifetime income, but also special federal income tax treatment on the annuity income if it is non-qualified (not in an IRA or a Qualified Retirement Plan). Part of the payment is considered return of principal and has already been taxed. This differs from regular withdrawals on a Deferred Annuity — where interest is deemed to be received first and is taxable as ordinary income to the annuity owner.

Take the next step

Asian Americans are generally open to new ideas and often eager to learn about different types of products. They usually value financial education and why a product may be right for them. Annuities may be a great fit, but they may not be suitable for all situations or individuals.

[1] 2020 Census Illuminates Racial and Ethnic Composition of the Country.

[2] Income and Poverty in the United States: 2020.

[3] Nielsen: The Asian American Consumer 2013 Report

[4] Pew Research Center: 2021 Key facts about Asian Americans, A Diverse and Growing Population

[5]United States Life Tables, 2019

[6] Pew Research Center: Key Facts About Asian Americans 2021.

[7] Some riders may charge additional fees