Six in 10 believe advisors have a responsibility to present such products
Washington, DC, March 14, 2017 – The greatest financial challenge facing retirees is determining how to make sure their money lasts as long as they do.
That challenge is exacerbated by the current low interest rate environment, which produces relatively little income from the safer types of investments that many retirees favor.
A new survey finds that 61% of Americans age 55-75 place a high value on having guaranteed lifetime income to supplement their Social Security income. A similar number – six in 10 – believe financial advisors have a responsibility to present products that offer this benefit to their clients as part of a retirement income strategy.
Significantly, the 3rd Annual Guaranteed Lifetime Income Study found that the most appealing aspect of these products is that they provide a predictable income that never runs out – it cannot be outlived.
The study is a joint project of the leading market research firm Greenwald & Associates and CANNEX, an independent provider of pricing and product comparison analytics to the financial services industry. They surveyed 1,105 consumers ages 55 to 75 who have at least $100,000 of investable assets.
Retirees unsure about what they can spend in retirement
“Our research indicates that many retirees are unsure of how much they can afford to spend in retirement,” said study director Doug Kincaid of Greenwald & Associates. “Retirees can adjust their discretionary spending in retirement if they need to, but it’s clearly comforting to know that essential expenses are covered by a source of income that won’t run out.”
The vast majority of those surveyed – 81 percent – believe it’s especially important for people over age 50 to have a strategy to protect their portfolio against significant investment loss. The study found that despite a high level of consumer interest, very few people own financial products that provide guaranteed lifetime income.
Even familiarity with these financial products is low: only a third of consumers are highly familiar with annuities in general, and even fewer are familiar with annuity products that guarantee income for life. Even among those who own an annuity, only about half (53%) say they have high familiarity with annuity products in general.
Consumers cited a number of advantages to guaranteed lifetime income products beyond the income itself – including peace of mind, the ability to budget with confidence, maintaining a comfortable lifestyle and receiving a higher payout than many fixed investments, such as savings accounts and CDs. But there were also concerns: consumers worry about the cost and complexity of these products. They also have difficulty determining how much a guaranteed stream of income for life is worth. When asked how much they would be willing to pay to receive $1,000 a month for life, two-thirds could not even hazard a guess.
Working toward savings goals
“Americans are comfortable with the idea of working towards a savings goal as they approach retirement,” said Gary Baker, President of CANNEX USA. “We’re less used to the idea of working towards an income goal once we reach retirement. This makes it difficult to see how guaranteed lifetime income products might fit into one’s strategy for funding retirement.”
Many Americans are not confident in their knowledge about how to produce income from their investments once they retire, the study found. Just three in 10 feel highly knowledgeable about the best strategy to withdraw income in retirement, while only a third are highly knowledgeable about how much they can withdraw and still make their savings last.
It is this lack of confidence that leads many to want more advice on strategies from their financial advisors: nine in 10 say that advisors should present multiple retirement income strategies and help each client decide what which strategy fits their needs.
Advisors likely hold the key for helping redefine the discussion when it comes to retirement income strategies. When advisors discuss retirement income strategies with their clients, those clients are three times more likely to purchase a product that guarantees lifetime income. Currently, a third of those working with an advisor have never discussed these strategies, while only about three in 10 have discussed guaranteed lifetime income products as part of a strategy.
Supporting materials for the 3rd Annual Guaranteed Lifetime Income Study are available here.
CANNEX Financial Exchanges Ltd. supports the exchange of pricing information for annuity and bank products in North America. The firm provides financial institutions with the ability to evaluate and compare various guarantees associated with retirement savings and retirement income products. In the U.S. this includes the evaluation of annuity guarantees (Income Annuities, Variable Annuities, Indexed Annuities, and Fixed Rate Annuities) and consulting services supporting the optimization and allocation of retirement income portfolios. For more information about CANNEX, visit here.
About Greenwald & Associates
Greenwald & Associates is a market research firm that has focused on research on retirement. The firm has partnered with the Employee Benefit Research Institute since 1991 to conduct annual Retirement Confidence Surveys of Americans and has conducted the Risk and Process of Retirement Survey for the Society of Actuaries biennially since 2001. Founded in 1985, Greenwald & Associates has conducted research for well over 100 of the nation’s largest financial services companies. For more information on the firm, visit here.