"If you don't have a pension, Social Security by itself is not going to be enough. Most people are going to have to have something to supplement it," he says.
That said, the industry focus these days is clearly on middle-income baby boomers looking to hedge their longevity risk. Though a case can be made that starting on a deferred annuity in your 30s and 40s will help recoup the higher fees over time, the combination of long waiting periods (typically seven to 10 years) and steep withdrawal fees (7 percent to 20 percent) makes it a tough sell.
Instead, insurers now tout their variable products as a platform from which to safely stay invested longer in equity markets.
"If you had $500,000 as a nest egg, we're talking about taking $50,000 at the most and buying off that 'tail risk' (longevity risk)," says Sanderson. "That dramatically changes the risk you can take with the other $450,000 in your portfolio. You can now take a little more risk because you know that, at a predetermined age, you're going to have your basic income needs taken care of."
Tough product to evaluate Glenn Daily, a fee-only insurance consultant in New York City, begs to differ.
"My response is, I think it's pathetic if that's the best we can do," he says.
Daily says he and many other financial advisers are frustrated by today's variable annuities, which are time-consuming and difficult to evaluate, much less compare.
"It's necessary, but not sufficient, to know what the ratio is between the present value of the benefits and the present value of costs. You really don't have a chance to be able to evaluate their products and compare them if you don't know that, because they're all different; they're not standardized at all."
Daily agrees there may be a place in a baby boomer's portfolio for a variable annuity. But as things stand, there's no easy way for advisers to evaluate variable annuities apples to apples, and clients would be unwilling to pay them hourly to do so.
"I've been dreading this, simply because I know that it's going to be very hard for me to give good advice on these products. These products are sold on an emotional level. Advisers want to advise based on hard facts. That's a major disconnect."
'War and Peace' complexity Naturally, with flexibility comes complexity. For every option offered to a prospective buyer, there's a corresponding risk to the insurer that must be managed, resulting in riders that read as long as "War and Peace."
The insurers are trying to address these issues through education. NAVA is working on instituting electronic processing of new business that would include a pre-sale screening tool to help advisers narrow the scope of suitable products for their clients. The Hartford has deployed 25 "retirement solutions consultants" not tied to any product to work directly with brokers and consumers.
"You've hit our biggest challenge in terms of distribution," says Sanderson.
Daily's best advice to his clients today? Wait.
"I'm not saying wait a decade; I'm saying wait six months. Put it on your calendar. There will be more information available in the next six months, and that information will be worth having waited. The problem of doing something now is, once you do it, it can be hard to undo it. It's not easy to reverse these decisions."