Researchers at Prudential Financial Inc. have developed a test that may help identify near retirees and recent retirees who are interested in variable annuities that come with performance guarantees.
The researchers at Prudential, Newark, N.J., worked with researchers at the University of Connecticut to develop a Retirement Emotion Quotient survey, then gave the survey to 1,008 U.S. residents in what Prudential calls the “Retirement Red Zone” – the period that starts 5 years before retirement and ends 5 years after retirement.
The researchers came up with a simplified, 12-question survey that can determine how much fear, regret, inertia, aggressiveness and susceptibility affect a Red Zone consumer’s investment decisions, according to a research report that describes the Emotional Quotient study results.
Scores on the final, 12-version Emotional Quotient survey can range from 14 to 66, with higher scores correlating with what the researchers believe to be a higher level of “behavioral risk,” or a tendency to let emotions guide investment decisions.
Results for the men and women in the calibration pool were similar, and participants were more likely to be conservative than to be aggressive.
Only 13% of the participants said they would prefer to take an aggressive approach to investments to maximize possible gains, while 35% said they would prefer to take a conservative approach to minimize potential losses.
Investors with higher EQs showed more interest in the kinds of guarantees that issuers of variable annuity contracts, variable universal life insurance policies and similar products often offer.
When researchers showed EQ participants examples of the effects of stock market slumps on hypothetical retirement portfolios, 87% of the high-EQ participants reacted by wanting to know about products that can mitigate the risk of loss, compared with 74% of the low-EQ participants.
About 70% of all survey participants said they were interested in 2 common types of VA guarantees – guarantees on the principal used to generate lifetime income and guarantees to lock in market gains on the money used to generate lifetime income – but 46% said they were not aware of principal guarantees, and 61% said they were not aware of products that could lock in market gains.
If the Retirement Red Zone investors surveyed owned products that offered income or asset guarantees, they would be more likely to get assets in the stock market during short market downturns, the researchers conclude.