A survey of nearly 500 financial advisors conducted by Sun Life Financial revealed that many investors had to adjust their retirement income plans after entering retirement—mostly in order to meet necessary expenditures, not to satisfy lifestyle choices.
More than three quarters (77%) of advisors surveyed by the Sun Life Financial Retirement Income Pulse Poll of Financial Advisors said clients needed to adjust their retirement income plans, either to avoid running out of money or to meet non-discretionary costs such as healthcare.
“We continually survey advisors and the general public to make sure we have or finger on the pulse of what’s going on,” says Steve Deschenes (left), senior vice president of annuities for Sun Life Financial, when asked about the genesis of the survey. “In this way we can ensure we’re developing the right products and solutions to meet investor and advisor needs.”
The poll explored investor knowledge of variable annuities with a living benefit, which can provide guaranteed lifetime income. The poll reveals a significant gap between investors’ desire to generate guaranteed lifetime income, and their understanding of best practices to do so. For example, while the top concern of clients age 50 or older is having enough income to retire on, most advisors say that on average, over half (62%) of investors who could benefit from variable annuities don’t actually own them.
“Survey after survey shows that people are far more confident in their retirement planning when they have both a defined benefit and defined contribution component rather than just one or the other,” Deschenes says. “The guarantees that variable annuities provide give them that confidence, and it’s occurring at a time when they need to be replaced with other guaranteed source of income, as defined benefit plans are going away.”
The poll also identified several solutions to bridge the gap between retirement income needs and best practices. Nearly a third of financial advisors (27%) conclude that their clients aged 50 or older lack the knowledge to evaluate variable annuities. Over a third of advisors (38%) say better education would boost participation by those investors who would benefit from variable annuities. An equal proportion of financial professionals (38%) say making this asset class easier to understand would increase participation in variable annuities by those who would benefit from them.
Survey finding suggested that increased investor confidence in the value and credibility of variable annuities would boost participation in this asset class by those who would benefit from them. Nearly half of advisors (43%), for example, say lower fees would boost investment.
“It’s up to us in the retirement income planning field to show that guaranteed retirement income solutions are worth the money given the protection they help to provide against the risk of declining interest rates, the risk of a declining stock market, and the risk (if you’re are lucky enough to live a long life) of running out of money,” say Terry Mullen president of Sun Life Financial Distributors. “Investors are paying us to provide them a guaranteed income stream for 30 or 40 years. That’s an important service, since for most Americans, gone are the days of defined benefit plans, where the employer provided guaranteed lifetime retirement income.”