Educating clients on guaranteed income in a post-pandemic world
by Dan Farrelly
COVID-19 has undeniably caused many financial hardships. When sorting through them, it’s important to reflect not only on how the pandemic has impacted American investors in the short term, but also its effect on how they think about their retirement.
There is now a huge opportunity for advisors to demonstrate empathy and take action by showing their clients that they understand the changes in the retirement planning landscape and actively advising them on how to achieve the best possible outcomes in this new environment. Much of this will involve educating clients about the best products to meet their shifting needs. To understand what’s on the minds of today’s investors, F&G recently surveyed them about their wants, needs and overall priorities when it comes to retirement and retirement products post-pandemic.
Clients Saving Money During COVID, But Not Investing in Retirement
While many individuals and their families may have experienced a job interruption or loss of work altogether due to lockdowns, many with jobs that could be done remotely found themselves working continuously through the pandemic while also spending less.
F&G’s survey found that while 55% of American investors saved more money during the lockdowns of COVID-19, a majority of them did not invest those extra savings towards their retirement. Of this group, over half (53%) simply deposited their surplus into a basic savings account, compared with only 36% who invested their COVID-19 savings for retirement. This is a missed opportunity for all Americans, and it was true across all age groups, with only 38% of Gen X’ers, 34% of Baby Boomers and 27% of Silent Generation respondents reporting investing extra savings in retirement. Many likely don’t know what to do with the extra money they have or they may not be confident in how to identify products that meet their current risk tolerance. The cost of waiting, or leaving funds idling in a savings account, is near all time highs as yields on savings accounts and money markets are at historic lows.
Advisors Missing Opportunity to Educate Clients about Products for Retirement Planning
This knowledge gap among existing and prospective clients highlights the opportunity to educate clients on the variety of products available to meet their retirement planning needs.
F&G’s survey found that despite a majority of people aged 40+ using a financial professional (52%), most that do are still only discussing traditional mutual funds (50%) and stocks (49%) with their advisor. They are not as familiar with other financial products available to them such as ETFs and bonds or insurance options such as annuities.
Often this is because their advisor doesn’t talk about them. Only 29% said their advisor spoke to them about annuities. There has been great evolution and innovation in the annuity marketplace over the last decade, and many of these annuity products offer the exact type of protected growth and predictable income that consumers are seeking. With the potential for these solutions to serve as mainstays of the average investor’s portfolio today, the findings underscore the need for better investor education so they understand and have full visibility into their investment and insurance options.
Understanding Client Retirement Planning Needs
In addition to client education, to be thorough in constructing a sound financial plan going forward, financial advisors must also shift their approach to asking about and understanding their clients retirement planning needs – whether that is providing guaranteed income, maintaining principal protection or looking for upside potential.
When it comes to retirement products, F&G’s survey found that American investors are primarily interested in those that provide both principal protection and guaranteed income. While somewhat counter-intuitive, having the potential for high returns was ranked as a lower priority than protecting principal among every age group, with 54% of respondents ranking 100% principal protection as very important, compared to only 21% who said the same about having the potential for higher returns. This shows that the majority of investors seem to prioritize de-risking their retirement savings in lieu of chasing outsized returns.
This is especially true for Gen X’ers and Baby Boomers approaching retirement. Ninety percent of Gen X’ers say 100% principal protection is very or somewhat important when considering retirement products, and Baby Boomers ranked guaranteed retirement income as their most important consideration. Recent sales trends seem to alin with the growing demand for protection as investors approach and enter retirement. LIMRA recently reported that U.S. annuity sales jumped 40% in Q2 2021, marking the highest sales in more than a decade.
The Ball is in the Financial Advisor’s Court
Despite the strong interest in products offering guaranteed income, only 9% of Gen X respondents reported owning annuities and only 24% said they understood annuities very well. As a segment of Gen Xers start to approach retirement age, it offers advisors another opportunity to discuss new products and ensure that the client’s current investment mix aligns with both their current and long-term needs.
In addition, among the growing contingency of advisors who are leveraging annuities in retirement planning, they’ve found that many of the guaranteed income solutions available within annuities allow them to create more efficient income streams for their clients. They’re able to generate more guaranteed income, with less capital outlay by leveraging the pooled risk that a carrier can offer.
While the worst of the pandemic is hopefully now behind us, advisors also need to understand that many of the changes it brought are here to stay. That requires more frequent conversations about their current financial situation, including how clients view retirement products and the features that are most important to them. With such a large education gap among clients around what to do with their extra savings and the benefits of investing in their retirement, the ball is now in the financial advisor’s court to talk to their clients about the options available to them and how they will help them reach their long-term goals.