Despite Covid’s ‘blip,’ life expectancy is still rising, and with it the desire for clarity, better outcomes
by Glen Franklin, RICP®Glen Franklin, RICP® is director of customer research at Jackson National Life Distributors LLC, the marketing and distribution arm of Jackson National Life Insurance Company® (Jackson®).
U.S. life expectancy dropped by a year and a half in 2020 as the coronavirus took hold, which has attracted a lot of attention — and rightfully so. This has made life expectancy for the average American the lowest since 2003 and represents the largest single-year decline since World War II.
Not only does this significant decrease reflect lives lost directly to COVID-19, but broader effects on health attributed to the pandemic such as a record-high number of deaths from drug overdoses. On a human level, I am saddened by the tremendous loss of life and feel great empathy for all the families who lost friends or loved ones, or whose lives have been otherwise negatively affected by the pandemic.
As a marketing researcher with Jackson focused on people’s emotional relationship with money and their behaviors related to retirement finances, it’s my job to also view this information through a different lens. I try to determine how it affects the financial professionals we support as they work hard to help clients secure their financial futures amid present-day concerns. To enable more meaningful client discussions at a time of persistent distraction and uncertainty, I’d like to offer some research-based observations that may help provide clarity in retirement planning discussions.
Life Expectancy “Blip” Shouldn’t Obscure Potential for a Very Long Retirement
The sudden life expectancy drop associated with the pandemic may cloud the very real possibility your clients will live far longer than they ever thought possible. While the COVID pandemic is clearly a significant event, on the longevity radar screen it is merely a blip. The reality is the number of people who live past the age of 100 has been increasing for decades and likely will continue to do so into the future.
In fact, recent research by the University of Washington determined with nearly 100% probability that the current record of a 122-year lifespan will be broken by the end of this century. The research found there is a 99% probability someone will live to 124 years old and a 68% chance someone will reach 127. An even longer lifespan is possible but less likely, with a 13 percent probability someone will live to 130.
While it’s tragic so many have died from COVID-19, the pandemic has led to medical advances associated with vaccines and the treatment of viral infections that are expected to contribute to longer life expectancies in the future. For financial professionals the message is clear: It’s essential to prepare clients both mentally and financially for lives that will likely last far beyond the pandemic. With the trend toward longer life expectancies — and the associated longevity risk — having sufficient retirement income will be even more important.
Running Out of Money in Retirement Remains a Top Fear for Many Americans
Research consistently shows that many Americans fear running out of money in retirement even more than death, whether from a pandemic or any number of other possible causes — a recent study found this to be the case with more than 60 percent of baby boomers.
Jackson’s own recent research with Ageist found that despite their rebellious spirit and risk-taking mentality, today’s 50-and-over set is suddenly feeling somewhat less financially secure, even as they continue to redefine what it means to age with great enjoyment and vigor. Not only are they concerned about economic and market volatility, but they are more cautious with their investing and spending.
This is understandable considering their plans for the future have evolved over the past year and a half against the backdrop of a global pandemic, civil unrest and economic uncertainty, among other stressors — it’s been a lot to absorb. “There is a bit of vulnerability in everything,” explained a male research subject in his 60s. “It feels like uncharted territory.” A woman, also in her 60s, said, “The market has been so vulnerable, and I have experienced some loss. I am currently evaluating more stable products with my financial advisor.”
The key takeaway here is that in addition to motivating more people to seek financial advice — many for the first time — the pandemic has reinforced the need for retirement options that offer greater certainty. Financial professionals who can provide strategies that lead to better financial outcomes will benefit from new opportunities to grow their practices as we rapidly approach a point in 2024 when more Americans will reach retirement age than at any time in history.
Annuities Valued as an Option to Help Address Longevity Risk
Having established both the trend toward longer life spans and the accompanying fear of not having enough money to last throughout retirement, we’re left with the question of what to do about it. It’s clear that options for protected lifetime income aren’t as common as they used to be. Private-sector pensions are a luxury few enjoy today and even many public-sector pensions are in jeopardy, underfunded by anywhere from $1 trillion to $4 trillion.
Then there’s Social Security, which was designed to replace only about 40% of income for the average retired worker but is relied on more heavily by many people because they lack other sources of guaranteed lifetime income. Additionally, the average American household loses $110,000 by claiming Social Security benefits before they reach full retirement age.
Considering the consistent threat of market volatility, the persistent low-interest-rate environment, and other factors mentioned above, I suggest annuities are an excellent option to consider in addressing longevity risk. Not only can they contribute to a balanced financial plan, but today’s broad range of annuity options can support effective strategies for clients to protect and grow their assets and create opportunities for protected lifetime income at a time when options for generating such income are limited. They also have the added benefit of improving how people perceive and experience their retirement.
But don’t simply take my word for it — after all, I work for Jackson, the country’s leading seller of annuities, and there’s the potential for bias. In my profession, research bias is an occupational hazard that we try to avoid at all costs, and this requires looking to outside perspectives.
Toward this goal, let’s consider the findings of a recent survey from RetireOne and Protected Life Corp. that found the share of financial professionals who would not recommend an annuity is shrinking. It also found that 90 percent of RIAs whose clients own annuities agree or strongly agree that guaranteed lifetime income makes their clients more confident in their retirement plans, which can help them relax.
A lack of awareness about advancements and innovations in annuity design over the past decade was cited in the executive summary as a likely reason why some financial professionals remain unlikely to recommend an annuity.
Among the findings of separate research conducted recently by the Alliance for Lifetime Income and Cannex were that 84% of investors who have an annuity are very satisfied with their financial professional compared to 74% who don’t have an annuity. The research also found that over half of investors who have an employer-sponsored retirement savings plan are interested in investing in an annuity through it.
Let’s Help More Americans Secure Their Financial Freedom
With more than 10,000 people turning 65 every day — a number that will increase to more than 12,000 per day over the next few years — millions of people will soon reach retirement age. This means our industry will have an unprecedented opportunity to help a record number of retirees secure their financial freedom. How well we perform will have a tremendous impact on our economy and larger society for many years to come and the research clearly shows annuities can play an important role.
I am confident in our ability to work together as an industry to ensure more Americans have the resources they need to retire with confidence and I consider it an honor to be a part of an industry focused on such an important mission. I’m also proud to work for a company laser-focused on this goal and providing the products, resources and tools that help make retirement clearer for everyone, especially financial professionals and the clients they serve.
Guaranteed lifetime income can be obtained through the purchase of an annuity with an add on living benefit. Annuities are long term, tax deferred vehicle designed for retirement. Variable annuities involve risk and may lose value. Earnings are taxable as ordinary income when distributed. Individuals may be subject to a 10% additional tax for withdrawals before age 59½ unless an exception to the tax is met.
Add-on living benefits are available for an extra charge in addition to the ongoing fees and expenses of the variable annuity and may be subject to conditions and limitations. There is no guarantee that a variable annuity with an add-on living benefit will provide sufficient supplemental retirement income. Guarantees are backed by the claims paying ability of the issuer.
Jackson, its distributors, and their respective representatives do not provide tax, accounting, or legal advice. Any tax statements contained herein were not intended or written to be used and cannot be used for the purpose of avoiding U.S. federal, state, or local tax penalties. Tax laws are complicated and subject to change. Tax results may depend on each taxpayer’s individual set of facts and circumstances. You should rely on your own independent advisors as to any tax, accounting, or legal statements made herein.
Jackson® is the marketing name for Jackson Financial Inc., Jackson National Life Insurance Company® (Home Office: Lansing, Michigan), and Jackson National Life Insurance Company of New York® (Home Office: Purchase, New York). Jackson National Life Distributors LLC.