By Cyril Tuohy
The retirement habits of the American worker have come under scrutiny over the past few years, and much of the news isn’t good. Americans save too little, their retirements are underfunded and their perception of risk appears deeply skewed.
Before talking about how to solve the coming hardships, however, advisors should be aware of statistics that put risk in perspective, and highlight how misplaced many peoples’ fears actually are. After all, it is National Retirement Planning Week, April 7 to 11, so there’s no better time to talk about misplaced fear.
The odds of suffering from a snake bite are 1 in 50 million per year, from a spider bite 1 in 51 million per year, from a shark attack 1 in 315 million per year, from a dog attack 1 in 9.53 million per year, and from swine flu, 1 in 383,758 per year.
Before going out and buying shark repellant or face masks, consider these other statistics, and some of the odds they represent.
More than four in 10 Americans are 90 days away from poverty, nearly one in six (15 percent) lives below the poverty line, most Americans have less than $25,000 in retirement savings, 68 percent of Americans live paycheck to paycheck, 48 percent of Americans don’t contribute to their retirement plans.
The statistics, made available by the Guardian Life, help paint a picture of risk and its proportions for advisors.
Statisticians often point out the absurdity of these fears. Every day, advisors run into clients frightened about the wrong things. The skewed perception of risk proportionality would even be funny if it weren’t so serious.
Douglas Dubitsky, vice president of product management for Guardian Retirement Solutions, calls longevity – outliving assets in retirement – one of the greatest risks facing the U.S. today. The “multiplier effect” of longevity risk has the potential to amplify every risk faced in retirement: inflation, health care costs and market returns.
“All of them are multiplied by longevity,” he said in an interview with InsuranceNewsNet. ”Everybody is going to die but nobody knows when.”
The longevity discussion is different from the “life events” that often dominate product-centered chatter between financial advisors and their clients. Longevity risk isn’t about birth, marriage or death. It’s less concrete – and more open-ended.
Partly as a result, advisors have difficulty starting the conversation around longevity, Dubitsky said. Other times, the conversation bogs down in clients obsessed with rates of return and how insurance products compare with mutual funds, for example.
“Longevity is something reps don’t talk enough about,” Dubitsky said.
Millions of Americans will live longer than they ever planned. Already, there are more than 53,000 centenarians alive in the U.S. today, according to the Guardian figures.
People should be scared, but not about spider bites. They should be scared about outliving their assets, he said.
So where do advisors go to allay fears? Turn off the financial cable news channels and look to annuities, he said.
They are the financial products that take “fear off the table,” he said, as annuities are the only product that guarantees income that outlives the life of the annuitant, whether the annuitant receives $500 a month or $5,000 a month.
Some advisors stay away from annuities. They think they can do better either through mutual funds or other investments.
Perhaps, but that doesn’t remove the fear factor for their clients. Advisors who structure annuities to cover expenses in retirement, and then invest what’s left, are those who’ve taken risk off the table, he said.