Retirement 2.0blog

Study finds most retirees want guaranteed lifetime income

Consumers want products that offer peace of mind and make it easier to manage a budget in retirement

Mar 8, 2017 @ 4:57 pm

By Mary Beth Franklin

Most Americans are comfortable with the idea of working towards a savings goal as they approach retirement, but few know how to create an income strategy once they get there.

The greatest financial challenge facing retirees is determining how to make their money last as long as they do. That challenge is exacerbated by the disappearance of traditional pensions and the current low interest rate environment which produces relatively little income from the safe types of investments that many retirees favor.

"Our 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," said Doug Kincaid, director of the "Third Annual Guaranteed Lifetime Income Study" released Wednesday. "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 study was conducted by market research firm Greenwald & Associates and Cannex, a company that provides annuity and bank product pricing and analytics to the financial services industry. The survey, which was conducted in December 2016, included 1,105 consumers ages 55 to 75 with investable assets of at least $100,000.

Compared to earlier surveys, the study found growing consumer concerns about maintaining a standard of living in retirement, the need to take more investment risk to finance their retirement income needs and worries about investment losses.

For example, the number of Americans who said they were extremely or very concerned about their ability to live comfortably though retirement jumped to 37% in December, up from 30% the previous year. Similarly, the number of respondents concerned about maintaining their standard of living in retirement rose to 34%, up from 25% in December 2015.

The survey also found that 81% of consumers think those over age 50 must have a strategy in place to protect against significant investment losses. In addition, more than half say they would opt for an investment that offered a lower but certain return over a higher return with a greater possibility of loss.

"The study reveals high levels of uncertainty post-election, particularly among pre-retirees with lower saving levels and a focus on maximizing returns in a the low-interest rate environment," Mr. Kincaid said. "It shows that consumers recognize the value of guaranteed income and expect advisers to discuss income strategies with them."

Despite the interest in retirement income strategies, a third of those respondents working with an adviser said they have never discussed these strategies. Only about three in 10 have discussed annuity products as part of an income strategy.

"The data shows when it comes to their investment portfolios, consumers are focused on risk assets, including equities, but at the same time want to ensure that in retirement they will have the income they need to meet their needs," said Gary Baker, president of Cannex USA. "The lack of familiarity about specific products underscores the importance of providing advisers and their clients options to meet both needs."

While ownership of annuities that offer guaranteed lifetime income is low among the respondents, when framed as strategies — such as using the products in conjunction with Social Security to cover essential expenses — more than half see the products as desirable. When advisers discuss retirement income strategies with clients, clients are three times as likely to purchase a product that guarantees lifetime income, the study found.

Consumers view guaranteed lifetime income products as offering peace of mind and making it easier to manage a budget in retirement, according to the study. In terms of perceived disadvantages, the complexity and cost of the products rise to the top of the list.

The annuity industry continues to face headwinds in 2017 as interest rates remain below historical norms and equity market volatility continues, with many fearing the long-running bull market may be nearing its end. Concerns over the impact of the Department of Labor's fiduciary rule on product design and distribution also loom large. But demographics remain favorable as the population continues to age and consumers continue to become more aware of the extent to which they are responsible for generating their own income in retirement.

(Questions about new Social Security rules? Find the answers in my new ebook.)

Mary Beth Franklin is a contributing editor to InvestmentNews and a certified financial planner.

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