In this ever-more sophisticated age of investing, financial planners and financial institutions are concerned that workers are still not saving enough for retirement, either due to a failure to realistically assess future costs or because they're spending too much, as the baby boomers are now.
Many Americans' poor saving habits are a crisis, concedes Heather Simon, a registered rep with Campisi Financial Network in Fairview Village, Pennsylvania, who believes many people don't think a shortage of retirement funds will affect them unless someone close to them has an age-related or medical condition that forces the family into a financial quandary. She has clients who spend more on medical prescriptions annually than they earn.
One recent survey found seven in 10 Americans are most concerned with short- and mid-term financial spending, placing retirement savings a distant third. Situations such as this are prompting Prudential Financial to recommend a multi-pronged approach to overcome these "Roadblocks to Retirement," as its new survey is called.
The study found that about two-thirds of people who unexpectedly retired indicated they weren't financially prepared, 60% say they are behind schedule in saving, and all survey respondents regardless of age, income or ethnic background "consistently expressed a lack of progress in retirement security" since 2000, according to the survey. About 70% expect to continue working to supplement income during the first 10 years of retirement, and almost half of the respondents said they were perplexed on how to choose financial products to meet their retirement needs, Pru's study showed.
Mark Hug, chief marketing offer for Pru's individual life insurance business, calls for more education of the public from employers and advisors on facing retirement. "People need to hear things over and over again," he says. The workplace is a "key place to break through some of these roadblocks," especially in the defined contribution plan, Hug explains.
Along with a multi-pronged approach of employer-based savings, considering long-term care, and an effort to explore and update a portfolio of diversified investments, Prudential is recommending investors consider annuities as a way to generate lifetime retirement paychecks. Annuities are the "the only instrument that I know of" that can guarantee a lifetime income, and can offer retirees much-needed certainty, Hug says.
There are new variable annuities on the market offered by Pru that offer "living benefits that make them appealing for someone who wants to convert a portion of savings into a paycheck, but does not want to give up control of the assets," a Pru spokeswoman says. Prudential recently introduced a highest daily value VA with an optional death benefit that locks in an annuity's best daily account value during a measuring period, as well as a VA with an optional living benefit that guarantees 5% annual compounded investment growth for up to 10 years, and a 5% annual withdrawal stream for life.
A lot of new variable annuity products are out that now offer lifetime benefit features, with companies each offering products that are a little bit different, says Simon with Campisi Financial Network who sells Metlife, ING, and Scudder annuity products.
Guaranteed minimum income benefit (GMIB) annuities, guaranteed minimum withdrawal benefits (GMWB) and annuities where you can lock in an income stream or have a minimum benefit base are popular among people nearing retirement age, and seeing their 401(k) drop in value after the last stock market dip, according to Joe Campisi, director of Campisi Financial. The earliest form of these GMIB annuities came to market around 2000 to capture a portion of the retirement market, he says. Although these types of annuities may not offer the greatest return, they offer peace of mind, he says, because they offer a guaranteed income or benefit amount even if the stock market plummets.
Read more of this month's Retirement Plan Advisor here.