The Right Way to Plan for Retirement
How new consumer attitudes and needs are shaping the market
Baby Boomers are increasingly becoming aware of the risk of shrinking assets. In fact, they fear this more than death. A recent study showed that 39 percent of Boomers were afraid of the Grim Reaper, but 61 percent said “outliving my money in retirement” was a scarier prospect.This worry is not only gripping older Boomers who may be dealing with severe portfolio shock just when they need to start tapping their savings. In fact, it seems even more pronounced in younger Boomers, who may still have 20 years of work and wealth accumulation ahead of them. Among those aged 44 to 49 who are married and have dependents, the fear of outliving assets jumps to 82 percent.
Boomers are not alone in their desire to discover how to maintain income for life. Financial professionals also recognize the need to make adjustments. According to a 2009 LIMRA survey of 1,200 financial professionals, advisors indicated these as the top three areas in which they want to grow their knowledge:
- Strategies to guarantee income in retirement (76 percent)
- Strategies to minimize the risk of outliving assets (74 percent)
- Techniques to protect against market volatility (70 percent)
Annuities by another name
Change is clearly under way in the world of financial planning for retirement. Individuals, financial professionals and government regulators are publicly stating a desire for guaranteed retirement income solutions, with annuities playing a central role. The problem is that the word “annuity” continues to have a negative public perception based on attitudes formed about the products 10 to 20 years ago.
When you think about the benefits of an annuity, it becomes clear that these are stereotypes we need to overcome. A recent study found that, among 15 different attributes of financial products, consumers rated these as the top five most important:
- Stable, predictable retirement standard of living
- Guaranteed income stream for life
- Guaranteed not to lose value
- Protection against market downside
- Don’t need to think about it; stable and predictable
Also noteworthy is that the lowest-rated characteristic was “the opportunity to participate in market upside.”
In short, an annuity is just what many consumers want — even if they do not realize it. Agents must start the work of renewing the public’s perception of this important and highly relevant product. It won’t be an easy task. In the aforementioned survey, 54 percent of consumers expressed distaste for the word “annuity,” even as they were seeking the very features and benefits the product offers.
Most consumers admit that their biased view against annuities is based on information from 10 to 20 years ago — sometimes even longer. In addition, 64 percent say they have not attempted to learn more about annuities since first forming their views.
Happiness is an annuity owner
For those who have a knee-jerk negative reaction toward annuities, a surprising fact may be that an informed owner of an annuity is a happy consumer: 80 percent of annuity owners are pleased with their purchase because of its safety, security and protection. In fact, annuities rank second-highest in satisfaction among all financial products.
Even with this buyer approval, however, 46 percent of respondents say that they have not heard about annuities from their financial advisor. Another 19 percent are uncertain whether an annuity was recommended.
All too often, retirement planning discussions never start because the financial professional’s visceral reaction to the word “annuity” preempts the conversation. This has to change, if only to allow the consumer education process to continue so that a fully informed decision may be made about guaranteeing lifetime income.
If you aren’t in the practice of advising your clients on annuities, it’s time to start. Begin by describing the basic benefits the product provides, rather than naming the product. This will help you circumvent any negative stereotypes that may exist.
The world of retirement planning has changed, and so has the fundamental perception of how to prepare for retirement. Regardless of whether consumers, educators, politicians, the media, government officials and business leaders want to accept this structural change, one thing is certain: The demand and need for guaranteed lifetime income planning and long-term security will only grow in coming years. «
Gary C. Bhojwani is president and chief executive officer of Allianz Life Insurance Company of North America. This article is an excerpt from his recently published white paper “Rethinking What’s Ahead in Retirement.”
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