Will Stocks’ Wild Ride Incite Flights To Safety?

Older Americans watching the stomach-turning gyrations of the stock market this week might be having some second thoughts about putting their retirement funds on that ride.

Financial professors say that these past weeks are a vivid reminder of the wild unpredictability of where the stock market will be when retirees need their money most. It’s in these times that consumers are receptive to safer money options such as annuities.

This week, the Dow Jones average dropped nearly 1,100 points early on Monday, before beginning the slow climb back. The Dow rallied in the afternoon to close down 588 points, and Tuesday brought another decline of 205 points. Wednesday morning perched on the promise of another wild ride.

Financial advisors who lived through the 1987 and 2008 market collapses say stocks will come back, either sooner or later.

In the meantime, especially if it’s later, consumers are likely to be looking for options that give them the security but with at least a modest return.

“I can’t help but believe that the attractiveness of guaranteed income to today’s boomers and today’s Xers … is more and more and more apparent on days like (Monday), when you wake up and the Dow is down 1,000 points,” said Craig Lemoine, a certified financial planner and professor at The American College.

Second quarter annuity industry sales hit an estimated $60.2 billion, according to data published by LIMRA Secure Retirement Institute (LIMRA SRI) last week. That number was 10 percent over first-quarter sales, and could rise further if the stock market remains sluggish.

“Times like this are a reminder of why guarantees can be so valuable,” said Michael Finke, professor and director of retirement planning and living, Texas Tech University.

In the aftermath of the 2008 market crash, fixed index annuity sales hit quarterly records in consumers' flight to safety. The lure of tax-deferred income growth and safe, if smaller, returns with protection from losses, made fixed income annuities a market crash destination for investment funds.

According to the Government Accountability Office, the New York Stock Exchange Composite Index declined by a total of 55 percent from November 2007 to February 2009.

Finke said his research on the 2008 crisis showed it’s mainly older investors who are likely to pull out of the market. And some would be smart to move money into safe places with a long horizon.

Changes announced by the Obama administration last year are enabling investors to stash a portion of their nest egg in longevity annuities without having to worry about required minimum distributions (RMDs) at 70 ½. Finke called the change a significant development to limit exposure to the stock market by older investors.

“In my mind, the way that we should get rid of some of that anxiety that we experience of running out of money in retirement is to buy away some of that risk for a modest price,” he said.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected].

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InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.