The COVID-19 pandemic may be waning in the U.S., but its lasting financial impacts are far from over. Just consider that according to MetLife’s research, nearly one-fifth (19%) of baby boomers have had to delay their retirement plans, with many (23%) indicating that the economic fallout from COVID-19 impacted their ability to save. This forced many to prioritize short-term necessities over their long-term financial goals.
But what if they didn’t have to choose? There is a solution that that can help ease financial uncertainties experienced by employees, particularly as we transition out of the COVID-19 pandemic: institutional income annuities. Income annuities provide a “paycheck” in retirement, ensuring that retired employees have a guaranteed income stream that allows them to budget their expenses and create a solid foundation for retirement.
Barriers to implementing institutional income annuities have lifted with the passage of the SECURE Act in 2019. However, this also means that many employers are still learning about the value of income annuities. In fact, MetLife’s research found that 27% of employers are unaware that their company is able to offer income annuities to employees. What’s more, one in 10 admit they don’t understand income annuity solutions altogether, reinforcing the critical need for education around this important topic.
Below are three misunderstandings that can often develop surrounding income annuities, as well as insights that can help employers leverage these benefits to promote long-term financial wellness in a post-pandemic world.
Myth: Institutional income annuities are investments.
Not only has the pandemic impacted employees’ ability to save, but it has also impacted their interest in investments they deem risky. Just consider that 67% of baby boomers agreed that the stock market’s volatility in the early days of the pandemic has made them nervous about any 401(k) plan. As a result, many employees may prematurely be hesitant to enroll in new retirement benefits such as income annuities.
To begin with, income annuities aren’t investments, but insurance products. By electing income annuities, employees actually gain protection for their retirement savings from market volatility. Even if the stock market goes up or down, employees can rest easy knowing that their income stream will not be impacted – providing stability in times of uncertainty. For employers, it’s important to understand the distinction between income annuities and investment products in order to adequately educate their workforce about income annuities in the new normal.
Myth: Institutional income annuities cause employees to lose control of their finances.
MetLife’s data shows that nearly one-third (31%) of baby boomers say that they have accelerated their retirement plans because “life is too short,” while one in four (23%) have done so because they want to spend more time with their loved ones. With this in mind, prospective retirees may not be thinking about how best to control their finances in retirement and may, consequently, pre-judge income annuities for being too rigid or inflexible.
However, for employees who are interested in this product, and for employers who offer them, it’s worth noting that income annuities may actually give them more financial control. In fact, electing an income annuity allows employees to create a guaranteed stream of monthly payments, so they have a clearer budget, versus trying to control one large lump sum of money throughout retirement. Employers today should reiterate these details to employees, underscoring that income annuities can actually help, and not hinder, employee freedoms both now and in the future.
In addition, annuities do not have to be an “all or nothing” proposition. By using partial annuitization, employees can create a guaranteed layer of income with a portion of their savings and keep some assets in the plan to continue to grow their savings once they retire.
Myth: Institutional income annuities are overly complex and confusing.
Despite concerns over the complexity of income annuities, they’re actually much simpler than one might think. In fact, the predictable cash flow provided by a lifetime income product makes it easy to turn an employee’s assets into a steady “retirement paycheck.” What’s more, there are no investment decisions to be made – making income annuities an all-in-one solution for employees looking for simplicity when planning their financial futures.
As employers continue charting a path toward a “new normal,” it’s clear that transparency will be the key to mitigating misunderstandings and properly educating employees about the benefits of income annuities. Employees today are understandably feeling uncertain about the future as we transition out of the pandemic and are consequently looking to their employer for guidance. By leveraging income annuities, employers can successfully extend their employees nearing retirement a lifeline during this difficult transition, ensuring that their retirement goals are adequately protected.
Roberta Rafaloff is vice president and head of institutional income annuities at MetLife. She may be contacted at [email protected].
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