Americans face retirement with fear and resignation. And though “hungry” for reliable information, many retirees are unsure about where to seek help.
That is a common view of retirement today, said a Cerulli Associates analyst in reporting preliminary results of a retirement study the Boston firm is compiling.
Many people who are planning to retire in, say, 10 years, really cant analyze what they will need to retire, said Cynthia Saccocia, a senior analyst at the firm
“What they need is advice,” she said here in a breakout session at a retirement income conference sponsored by National Association for Variable Annuities, Reston, Va.
However, she continued, the rise of defined contribution retirement savings plans–like 401(k) programs–has made it so that many pre-retirees now take a self-directed approach to their savings. Unless these people develop a relationship with a professional advisor early on, she warned, “self-directed accumulation may translate into self-directed retirement” later on.
Other speakers here also vetted retirement research findings, and likewise assessed issues and opportunities for the financial services industry raised by those findings. For instance:
Finding: NAVA CEO Mark Mackey reviewed a PricewaterhouseCoopers study NAVA commissioned on the value of lifetime annuitization.
Published in January 2002, this study found that “after tax income at age 65 from a life annuity exceeds that from a mutual fund by between 32.3% (immediate annuity) and 94.4% (deferred annuity purchased at age 40). And for life annuities with 10-year period certain, the comparable numbers are 27.6% and 87.4%.”
Opportunity: The findings make it clear that, “if you are super rich, you dont need a variable annuitization feature,” said Mackey. “But the rest of us need it for a portion of our retirement planning.” This is “very persuasive” information, he contended.
Going forward, annuity insurers should develop designs that offer the flexibility and liquidity todays buyers want, Mackey added. They should also offer education programs that help brokers understand the products and when to use them.
The study is “a call to action,” asserted A. Scott Logan of Sanibel, Fla., a former NAVA chairman. “Use it,” he urged the NAVA members, to show how annuities are superior products for retirement planning purposes.
Finding: In 2001, 16 insurers offered immediate variable annuities, said William Borden Ayers, principal of Diversified Services Group, Inc., a Wayne, Pa. firm that surveys the immediate annuity market. Ten other insurers offered IVA “substitutes” (deferred VAs that promote their payout features), he said, “and 22 carriers said they plan to offer an IVA product in the near future.” In general, he said, the industry, regulators, and media have all “remained focused on accumulation products, not distribution planning and retirement income.”
Opportunity: The industrys challenge is to get more focused on the problems and opportunities that retirement represents to the industry, said Ayers.
For instance, he noted, dependence, in retirement, on assets held in defined contribution plans will drive consumer demand for retirement income and individual pension solutions. Furthermore, demand for retirement income advice and planning will rise, now that investment returns no longer mask the need for such advice.