March 16, 2011

Retirement Income Market Tops $3 Trillion

Market doubled since 2006, expected to grow 25% by 2020

A survey released Tuesday found the retirement income market totaled $3.3 trillion at the end of 2010, or 11% of household investable assets. The survey, conducted by Hearts and Wallets, a retirement and savings research firm, found the market doubled since 2006, and the company predicts it will account for between 25% and 30% of all U.S. household investable assets by 2020.

The survey was conducted among executives at 23 financial firms with more than $10 trillion in assets under administration. Respondents indicated income planning is their top priority. While new products take lower priority, those with guaranteed income are "very important."

“The key will be how products are combined to produce a portfolio of income sources once full-time work in the primary occupation has stopped,” Laura Varas, principal at Hearts and Wallets, said in a statement. “This is a key issue on which all firms will need to have a point of view."

Varas pointed to employer-sponsored retirement plan providers. "Only a few years ago, a good deal of them were still saying ‘we don’t focus on the distribution phase,’" she said. "Now, a retirement investment methodology has become a competitive necessity, with product implications for vendors who sell them.”

Investors near or in retirement make up a large part of firms' clientele. Three-quarters of resources, including budget and management, are spent on "older investors," according to the survey. Over 80% of respondents said retirement income has become more important in the last three years.

She noted that firms are starting to recognize a need to help investors distinguish between what they want and what they need in retirement.

“It’s critical to focus on must have’s versus nice to have’s," she said. "What happens when I’m unemployable? If I encounter health issues or lack of job opportunities, what’s the minimum I need to have saved to be safe? Investors like this idea.”

Respondents also indicated annuities will be a major player in retirement plans.

“Our data suggests more advisors are recommending annuitization and more plan sponsors are making immediate annuities available to participants,” said Chris Brown, principal, in a statement.

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