Transfer of wealth through life insurance can improve next generations’ retirement prospects
September 16, 2015 — New research funded by Prudential Financial, Inc. (NYSE:PRU) showed although inheritances do not have a significant impact on the overall retirement picture, they may help to improve retirement preparedness at the individual household level. According to the research, conducted by Boston College’s Center for Retirement Research (CRR), 52 percent of U.S. households are at risk of not having enough money to maintain their preretirement lifestyles.
“It’s pretty clear people need to be saving more, and regulations have got to make it easier for them,” said Mark Hug, executive vice president, product and marketing, Prudential Individual Insurance. “Traditional pension plans that provide monthly payments for a lifetime are largely a thing of the past, so people need access to other avenues that will provide guarantees of retirement security.”
According to the index, among all households that received one, the median inheritance was $50,000, and the percentage at risk improved from 45 percent to 40 percent. “We’re encouraged by this improvement, and urge more Americans to consider even a relatively modest life insurance death benefit, as it can have a meaningful impact on improving the retirement security of the next generation,” said Hug.
An inheritance can be made in many different forms, including a house or financial assets. The death benefits from life insurance can function similarly to an inheritance, enhancing the retirement prospects of a household. Even if households receiving an inheritance are still at risk, the research indicates families are in a much improved position.
The report found when inheritances are included the overall NRRI dropped to 51.6 percent from 52.4 percent. This means that 51.6 percent of U.S. households are at risk of not having enough money in retirement even with inheritances factored in. The CRR says the reasons for this include the fact that only about 20 percent of households have received an inheritance; those that have, received a relatively small amount, and most households receiving an inheritance were not at risk.
There are ways to improve the retirement prospects of Americans, including:
- Making sure individuals save enough for retirement.
- Making sure individuals have access to a workplace retirement plan.
- Making sure individuals can convert their retirement savings to retirement income.
- Protecting existing and future financial assets with insurance.
- Adding guaranteed income features to defined contribution retirement plans like 401(k)s.
“As you work toward retirement, you need to consider how much you will save as well as how much you have already saved,” said Hug. “If something happens to you, the income that would have been generated can be replaced by proceeds from life insurance, which can close the gap between what you have and what you need.”
In addition, 2014 retirement research by CFO Research and Prudential has shown corporate executives believe 401(k)s and other defined contribution plans will make it easier to help reduce risks by adding features that automatically enroll employees and investment options that provide guaranteed lifetime income. These features help American workers increase the likelihood of a more secure retirement, according to Jamie McInnes, senior vice president, Total Retirement Solutions at Prudential Retirement.
“Americans are risk averse, particularly with money they are investing for retirement,” said McInnes. “Retirement plans that offer a guaranteed lifetime income option, and features including auto enrollment and auto escalation, are encouraging Americans to start saving more, and earlier,” says McInnes.
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