Americans want new ways to generate retirement income

Why aren't advisers talking to clients about the solutions that are out there? Many investors are still choosing only traditional investment vehicles and missing the complementary role annuities can play in retirement portfolios.

When it comes to retirement planning, many investors are still choosing only traditional investment vehicles like bonds and stocks and miss the complementary and important role annuities can play in retirement portfolios.

In today’s dynamic financial environment, investors often look for a retirement plan silver bullet. However, every adviser knows a well-rounded and holistic portfolio must include a tailored balance of solutions that provide both growth and security.

Yet many Americans are unsure how to achieve that balance. They don’t know what solutions are available and are looking for guidance. According to F&G’s recent Risk Tolerance Tracker, 36% of American investors are interested in exploring new financial products, compared to 28% in 2020.

Despite this openness, only 15% of respondents own an annuity, a critical solution for creating a guaranteed retirement income stream. Annuities are often misunderstood as complex, or in some cases expensive. However, as an insurance product, they are uniquely positioned to provide income and hedge other risks.

NOT YOUR GRANDPARENTS’ PENSION

In our survey, 71% of respondents said they owned a fixed deposit or money market account and 47% said they owned stocks, compared to the 15% who own annuities.

Some of this may simply come down to outdated perceptions of annuities. While most people have probably heard of simplistic variable or fixed annuities, they may be unaware of the benefits annuities can provide for addressing other factors, such as longevity risk and market volatility. That’s why advisers have a critical role to play in helping to educate clients on these offerings. While there’s no one-size-fits-all portfolio or annuity solution, alongside Social Security and traditional investment assets, an annuity offering lifetime income may help retirees achieve an improved and more predictable retirement.

With traditional corporate pensions becoming a thing of the past, clients still worry about outliving their retirement savings. If they’re relying solely on those traditional investment vehicles for withdrawals, there’s not always a guarantee how long those funds will last especially if value is lost due to market volatility. Annuities, on the other hand, are one of the few options that solve for the longevity risk, offering a guaranteed stream of income for life no matter how long you live.

RISING ANNUITY AWARENESS

Luckily, awareness of the benefits of annuities is increasing, and advisers are starting to educate their clients about them. The 2021 BlackRock DC Pulse Survey found that an increasing number of financial advisers are championing annuities (48% in 2021 vs. 23% in 2020), and investors are taking their advice when they do. The survey found that 61% of respondents that spoke to their adviser about annuities purchased one.

In a similar study, SRI reported that a majority (6 in 10) of adults who don’t have a pension or defined-benefit plan would be willing to convert a portion of their assets into annuity income – highlighting once again that investors opening up to the category.

“The question of how much to spend in retirement is a complex one – and as life expectancy continues to increase, this issue will only accelerate,” said Anne Ackerley, head of retirement at BlackRock. “Meeting investors’ needs for retirement income will require collaboration across the retirement ecosystem, with advisers, asset managers, consultants, plan sponsors, record keepers, and insurance companies all playing a role.”

FAVORABLE MARKET TO DISCUSS ANNUITIES

The increased investor interest comes at a time when the environment is making annuity products more attractive. With ongoing market volatility, rising inflation, and interest rates poised to rise over the coming year, investors are understandably concerned. In fact, F&G’s Risk Tolerance Tracker revealed 73% of American investors are very or somewhat worried about inflation impacting retirement, and 64% said the same about market volatility. Annuities can help protect investors against these risks and gain more peace of mind overall.

For advisers who may have hesitated on educating their clients about annuities, there are many reasons to take another look at this quickly evolving product set. There is an opportunity to demystify annuities, educating clients on how they work and helping them make informed decisions about the role of guaranteed retirement income as part of a holistic retirement plan.

Chris Blunt is president and CEO of F&G Annuities & Life.