The New Finance of Longevity

Diverging Attitudes About Lifetime Income

On the heels of 2020, new perceptions are emerging about our perceptions of retirement security

Excerpts from a new study by Cannex and Greenwald Research reveal how our new pandemic exacerbated an existing one: adequate retirement preparedness. Read the full report here.

COVID-19 has created turmoil across the globe and for those of us concerned about American retirement security—already considered by many to be its own crisis—the pandemic triggered alarm bells. High unemployment rates and easier access to retirement funds because of the CARES Act raised concerns that American workers would lose further ground in the quest for retirement security.

We have long shared the concerns of policymakers, academics, and industry leaders that many individuals are not adequately preparing for retirement and need to consider the full array of tools in the financial planning toolkit. In particular, Greenwald Research and CANNEX came together to better understand attitudes towards solutions with lifetime income guarantees. For years, the Guaranteed Lifetime Income Study (GLIS) has examined the attitudes of consumers and financial professionals around this topic.

The early phase of the COVID-19 crisis presented a unique occasion to examine this sentiment and investigate the impact of sudden equity volatility, historically low interest rates, and an environment of ongoing economic and personal uncertainty. The survey did find that nearly half (46%) of consumers feel less financially secure and nearly a quarter (22%) are less comfortable with risk as the result of the pandemic.

Despite this, the perceived value of having guaranteed lifetime income (in addition to Social Security) actually decreased between February and August. In February, 71% of consumers considered guaranteed lifetime income to be highly valuable (rated as a 6 or 7 out of 7), while only 63% said the same in August. This also represents the lowest point this statistic has been in the last three years.

No Seismic Shift In Sentiment

Before diving further into this question, it is important to contextualize that the decrease still does not suggest a signal shift in sentiment. Even though markedly lower, it remains high in a relative sense and does not represent a new low within the six-year history of this survey. In fact, perceived value of guaranteed lifetime income was lower in the winter of COVID-19 has created turmoil across the globe and for those of us concerned about American retirement security—already considered by many to be its own crisis—the pandemic triggered alarm bells. High unemployment rates and easier access to retirement funds because of the CARES Act raised concerns that American workers would lose further ground in the quest for retirement security.

We have long shared the concerns of policymakers, academics, and industry leaders that many individuals are not adequately preparing for retirement and need to consider the full array of tools in the financial planning toolkit. In particular, Greenwald Research and CANNEX came together to better understand attitudes towards solutions with lifetime income guarantees. For years, the Guaranteed Lifetime Income Study (GLIS) has examined the attitudes of consumers
and financial professionals around this topic. The early phase of the COVID-19 crisis presented a unique occasion to examine this sentiment and investigate the impact of sudden equity volatility, historically low interest rates, and an environment of ongoing economic and personal uncertainty.2016/2017.

Yet the decrease in perceived value is important to consider, especially given that most observers would expect the opposite reaction in the wake of a significant market downturn. In addition, fewer consumers agreed with the idea that “it is especially important for people over 50 to have a strategy to protect their portfolio against significant investment loss.” In February, 84% agreed with this; in August only 76% agreed. The agreement with this statement is also lower
than was in previous years (84% in 2019, 91% in 2018, 81% in 2016/2017).

Impact On The Investment Community

High unemployment rates and easier access to retirement funds because of the CARES Act raised concerns that American workers would lose further ground in the quest for retirement security...

The timing of the follow-up study is important, as it took place not just in the wake of a downturn, but once the stock market had essentially recovered from the initial crash. In questions that specifically mention the stock market or market volatility, investor concern about the threat of loss is relatively on par with where it was before the downturn. We saw indications that market volatility can make GLI more appealing to investors when we fielded the 2018 GLIS during a
period of significant market volatility. In comparison to the previous year, consumers reported both an increase in perceived value of GLI and in their agreement with needing a strategy to protect against investment loss.

The explanation for the 2020 results may be that the consumers saw how quickly markets can recover and are therefore unmoved about the risk of investment loss or market volatility. Additionally, financial and general uncertainty may strengthen the tendency to “hold steady” and not adopt new financial strategies. It is also possible that consumers may have an increased desire for higher liquidity into their opinions about guaranteed lifetime income.

Financial Professional Perspective

Interestingly, financial professionals overwhelmingly have a different view of the situation and believe that their clients see much higher value in guaranteed lifetime income than before. In particular, the majority of financial professionals believe that the current market and interest rate environment makes it more appealing to recommend guaranteed lifetime income products to their clients. Their response in relation to the stock market did not change between the two
periods—in the August survey 66% of financial professionals said that current market conditions make the products more appealing to recommend, in line with their response in February. However, the appeal of GLI in light of the current interest rate environment jumped significantly from 42% in February to 62% in August.

It is important to highlight that consumer understanding of GLI is closely linked to financial professionals discussing and recommending the products. Our analysis of the February data revealed that working with a financial professional and discussing income strategies with a professional were two of the four factors that increased one’s likelihood to own a GLI product. Unsurprisingly, age and familiarity with annuities were the other two factors. For this reason, it is especially noteworthy that between February to August financial professionals’ self-reported confidence in their knowledge of GLI products decreased dramatically from 71% highly knowledgeable to 59%. The year before (2019), 73% felt highly knowledgeable.

We suspect that financial professional-focused communications were tactical in nature, centering on process changes due to the pandemic, product rate updates, contest changes, and general COVID-19 communications. To better understand this, we looked at data around promotional materials on annuities emailed to financial professionals from Competiscan, a firm that collects and categorizes these communications. The overall volume of communications increased in the first part of 2020, peaking in April but remaining high through August. Pieces dedicated exclusively to COVID-19 did not account for the increase entirely, but many of the other categories include immediate changes. The sheer volume of communications suggests it was difficult for financial professionals to manage the incoming information and it is not surprising that some might have been confused or overwhelmed by August.

While a lack of promotional materials on the positioning of GLI is not likely to directly cause decreased knowledge around annuities, it is plausible that confusion emerged about how different annuity products behave in this novel environment. Similarly, financial professionals tell us that communication with clients is up considerably, yet very few advised consumers report having discussed annuities recently.

Read the complete report here.