Ninety-one percent of investors say it is important that their retirement income plan is designed to provide a guaranteed income payment or principal protection, while more than half of investors (56%) who have an employer-sponsored retirement savings plan are at least moderately interested.
This is according to the Protected Retirement Income and Planning Study by the Alliance for Lifetime Income (ALI) and CANNEX. The research was designed to better understand and forecast retirement income trends.
There are many reasons for this high level of interest among investors. First, the fear of running out of money in retirement has always been one of retirees’ biggest concerns, according to Cyrus Bamji, ALI’s head of communications.
“Our research demonstrates that there’s been a real “retirement reset” in people’s minds over the past year. BLS estimates that approximately 3 million Americans retired during the pandemic, which is double what was projected before the pandemic. With that comes the realization that retiring earlier means you have to fund a longer retirement. That reality has set in for Americans and has led people to take a hard look at the amount of risk and expected income in their retirement plans and investment portfolios.”
Second, Bamji said, “these trends have led to more consumers realizing that a retirement plan geared towards only accumulation fails to account for protection and their actual income needs in retirement, which we believe is creating this surge of interest in protected income solutions like annuities.”
Simultaneously, he added, annuities have undergone an innovation evolution over the past few years, resulting in a wide variety of new and more flexible annuity solutions that are able to create more value for retirees. Working with the right financial professional, it is easier than ever for consumers to find an annuity well suited to their unique financial needs in order to live the life they want in retirement.
Younger Investors Show Interest
The study also noted that 71 percent of all younger investors are interested in purchasing annuities as part of their overall retirement income plan. Bamji offers an important reason for this trend.
“Studies show that the chances of having a pension decrease significantly for the youngest boomers and Gen Xers,” he said. “Pensions after all have virtually disappeared, leaving a huge vacuum and the need to find a replacement for the protected income they once provided. Our research shows that younger investors are turning to annuities to fill that gap.”
As advisors meet with their clients about their retirement needs, the study noted that their conversations have changed as both groups seek to plan for retirement security in the face of a volatile and uncertain economic landscape. These conversations have changed dramatically over the past few years, specifically in two ways, Bamji said.
“First, many financial professionals have realized that the accumulation-only mindset (i.e., save and invest in order to build the biggest nest egg) is only half the battle, especially when their clients are getting closer to retirement. The other half—figuring out how to turn that nest egg into reliable income every year for the rest of a client’s life – is significantly trickier and requires a deeper understanding of a client’s hopes, dreams and expected lifestyle. It’s a mindset shift for sure, but clients are clearly gravitating towards advisors that can deliver on both sides of that coin.”
Conversations are more holistic in nature today—or at least they’re headed in that direction, Bamji added. The ability to grow a client’s nest egg will always be important; however, clients no longer want an advisor who considers this in a vacuum.
Instead, they want a trusted partner who understands their sense of purpose, things they really want to accomplish in the next phase of life, and their personal and family dreams for retirement.
“To consumers,” Bamji added, “a financial plan that doesn’t take these into consideration no longer makes sense. But combined, it can be tremendously powerful and empowering. It’s the right thing to do.”
Helping Clients Prepare
To help clients prepare for a secure retirement, financial professionals need to understand their clients’ protected income gap, Bamji noted. That is: How much guaranteed income can they expect each month to cover their essential expenses, and is it enough to last throughout retirement, no matter how long that is?
“If a client’s essential expenses exceed their protected income, then it is highly likely their retirement security is at risk,” Bamji said. For financial professionals, he added, “the good news is that you can be that trusted advisor that your clients always turn to and rely on if you can help them fill that protected income gap.”
Artemis Strategy Group surveyed 1,519 investors ages 45-75 with a minimum of $100,000 in investable assets between April 1-13, 2021. One third (34%) of the sample is retired (either fully retired or retired, but working part-time). It also surveyed 602 financial professionals between March 23 and April 12, 2021.
Ayo Mseka has more than 30 years of experience reporting on the financial-services industry. She formerly served as Editor-In-Chief of NAIFA’s Advisor Today magazine. Contact her at INNfeedback.com.