An increasing number of researchers are concluding that the only way to capture the wave of baby boomers focused on retirement income will be to target their products and services to very diverse needs, based on the different characteristics of consumers.
Some would even argue that “product” alone won’t be enough. To many, it’s clear that both new and “recycled” products, along with some degree of advice and planning, will be required to adequately address the retirement income challenges facing most households.
In terms of retirement income profile, Milliman determined that boomers fall into three broad consumer segments, based on pre-retirement income, assets and net worth. These are shown in the box.
Product solutions for these segments range from narrowly targeted products to meet a specific need for the upper affluent market to simple but comprehensive products for the middle/mass market.
Some solutions are already in the market and well-known. Others are less well-known. Still others have yet to be developed. A theme running through all of the products is protection from the longevity risk–the risk of outliving assets when living beyond retirement life expectancy.
Here is an overview:
Deferred income annuities: Pure longevity protection can be provided by deferred income annuities, which guarantee income at market rates at time of issue but do not provide income until much later. For example, one can purchase at age 65 an income that will begin at age 85.
GLWB: In variable annuities, the newer guaranteed lifetime withdrawal benefit (GLWB) has a present and future role in retirement income. These optional features combine longevity protection and asset protection, while allowing policyowners to maintain control of assets. This is because the GLWBs enable the owner to make specified withdrawals from the VA for a lifetime, regardless of the contract value.