Pre-retirees want guaranteed income, but advisors aren't excited to deliver

Nearly nine in ten Americans approaching retirement have thought about how they will generate income once their paychecks stop, but half of them have no recently updated plan for doing it, according to new research from LIMRA.

The new research from LIMRA's Retirement Income Readiness Report, released this week, helps frame a persistent gap between what pre-retirees want and what the retirement industry – and their advisors – are delivering.

Mind the confidence gap

Drawing on an April survey of 486 pre-retirees and 804 retirees aged 45 and older, the LIMRA report found most respondents self-rating as reasonably prepared. Fifty-nine percent of pre-retirees and 63% of retirees scored themselves in the "high" end on a 0-10 preparedness scale.

LIMRA found that confidence tracks closely with financial guidance rather than assets alone. Pre-retirees working with a financial advisor or planner reported high preparedness 77% of the time, versus 47% for those without one – yet only 40% of pre-retirees currently work with an advisor, and just 8% of the least-prepared group does.

"Consumers are telling us exactly where the industry can help," said Bryan Hodgens, senior vice president and head of LIMRA research. "They value guaranteed lifetime income, they're worried about outliving their money, and three-quarters of them are raising their hands to learn more."

Read more: Retirees spend twice as much when they have guaranteed income, research finds

Jason Fichtner, executive director of the LIMRA Retirement Income Institute and a former deputy commissioner of the Social Security Administration, said pre-retirees' anxieties are consistent and specific: "prices that won't stop rising, an unexpected health shock, and the fear of outliving their money." He added that "the task in front of the industry and policymakers is to give people reliable tools to manage them, not just reassurance."

Roughly seven in ten respondents said they prefer retirement income that includes a protected component – Social Security, a pension or an annuity – over relying solely on portfolio withdrawals. Yet only 25% of pre-retirees believe their protected income sources will actually cover essential living expenses, compared with 52% of current retirees who say those sources fully cover their basic costs today.

Why advisors are allergic to annuities

If client demand for guaranteed income is broad, advisor adoption of the products built to deliver it has lagged. Rich Romano, chief executive of FIDx, told InvestmentNews earlier this year that the holdup around annuities comes down to the operational burden of selling them.

"The amount of hoops one must jump through to sell an annuity versus a traditional investment is night and day," Romano said, pointing to inconsistent carrier paperwork, licensing hurdles and assets held away from a client's primary account that complicate quarterly reviews.

Romano said the friction often surfaces at the point of execution rather than during planning. "The advisor has to leave the planning environment, open a separate carrier system, and start a whole new process. That interruption kills momentum," he said, adding that advisors who see value in guaranteed income solutions often default to easier alternatives instead.

Read more: Why RIAs are the next growth frontier for annuities

LIMRA's report identifies a parallel barrier on the consumer side: cost concerns and reluctance to lock up savings are the top reasons pre-retirees cite for avoiding protected-income products. To help overcome those hurdles, it encourages financial professionals to take an education-driven approach, helpng consumers understand how retirement income solutions fit into broader financial plans and long-term retirement goals.

“The key to retirement preparedness is giving workers the ability to understand when they have enough to retire, and how to turn savings into income,” said Michael Finke, fellow at the LIMRA Retirement Income Institute.