Peak 65 underscores the need for protected income

Peak 65 means a new wave of Americans is hitting the traditional retirement age but the retirement industry must help them protect the income they will need to see them through their post-employment years.

A panel at the recent Alliance for Lifetime Income Summit discussed ways the industry must help the majority of retirees who will not have a traditional defined benefit or pension plan to support them after they say goodbye to the workforce.

The U.S. population reaches Peak 65 this year, meaning that more than 30 million Americans will reach age 65 between now and 2030. The majority of this age group will have no protected income in retirement, said Robert Powell, editor and publisher of TheStreet’s Retirement Daily.

The public/private safety nets designed for retirement in the last century no longer work for the demographics of this century, said Nick Lane, president of Equitable.

“I think one of the questions for the new generations is, how do I create my own defined benefit plan, my own pension plan? Because if I do that, if I had secure income, that changes my outlook of what I can spend, and also eliminates that tail risk which is, in a downside scenario, I don't have to worry about my assets,” he said.

This generation of retirees will be the first to be reliant on defined contribution plans, said John Kennedy, executive vice president of Lincoln Financial Group. This creates an excellent environment for annuities.

'Just scratched the surface' of annuities

“We’re coming off two years in the annuity world of good sales, but we have just scratched the surface,” he said. “When you see what an annuity or lifetime income can do, it will be huge moving forward.

“I think we are at the beginning of something that makes me feel good because insurance companies are the only ones that create this personal pension plan.”

Annuities can provide the answer to the need for growth and protection, said Ken Mungan, chairman of Milliman.

“As people are working and then going into retirement and being retired, they face three distinct phases they must go through: Everyone needs to save money when they're in their 20s and 30s. They need to then invest that money so that it can grow for the future. And then as people get older and phase into retirement, they need to manage risk.”

The challenge, Mungan said, is that the risk management phase comes last.

“People have their savings but then they still need it to grow and they need it to last so they need growth and protection.”

Mungan said that Peak 65 marks a big opportunity for protected income “but it also makes it different from what advisors faced years ago.”

Lane agreed.

“Peak 65 is a new phenomenon,” he said. “The financial advisor has spent their entire career focused on accumulation – let’s make the pile of money as big as possible. But we’ve never focused on income. There are great tools to do this, but we focus so much as an industry on the accumulation part of it that the income part of it is scary not only to the financial professional but to the clients as well.”

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Susan Rupe is managing editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at [email protected].