Paying for Keeps

Research: Your 2007 Investor Research Survey delivered some interesting results about attitudes toward retirement. What did you find most exciting about the data?Greer: Our research findings challenge conventional wisdom in several ways, but a couple really stand out. First, while it’s not surprising that ensuring guaranteed income for life and protecting assets have become paramount concerns, it is surprising that these concerns even outweigh covering healthcare costs, an area that has traditionally received a lot more media attention. In fact, 97 percent of those over 45 rated “guaranteed income for life” as a top financial goal.

And they’re willing to pay for it, apparently.Two-thirds of boomers surveyed said they’d be willing to sacrifice up to 2 percent of investment returns annually to ensure a lifetime income. In other words, they’re willing to pay to insure their retirement income, just as they would their healthcare. Americans are realizing the only guaranteed pension check most of them are likely to receive is the one they create for themselves.

It may surprise some industry experts that Americans see significant value in funding a qualified plan with a tax-deferred investment. Our independent research, conducted by Harris Interactive, showed that two-thirds of boomers would be interested in allocating a portion of their qualified plan and half would roll over assets from an existing plan into a variable annuity that offered the potential for stock market growth, downside protection and guaranteed lifetime income.

There’s no doubt that more and more Americans are concerned about outliving their income. Even affluent investors in the survey said they feel vulnerable — 56 percent of boomers with between $250,000 and $2 million of investable assets were concerned about outliving their wealth when considering a 30+ year retirement. That bodes well for the variable annuity industry, which now offers extensive income guarantees.

Do these products make sense for a younger client market?Living benefits in today’s variable annuities can be highly attractive features for younger investors. After all, a 50- to 55-year-old has a substantial period of time before retirement to invest for growth while protecting future income against the potential havoc of another bear market. And remember that being younger doesn’t automatically mean being less risk averse. Many of these people lived through the tech bust and bear market that followed. Some of them have likely become quite averse to risk, and the ability to “insure” future income against today’s potential market losses provides a level of security they may need before they will embrace equity investing.

Presumably the more mature pre-retirement demographic will continue to embrace them as well?Of course, variable annuities remain excellent options for more mature investors as well. Today’s newest products address the concerns of 60- to 65-year-olds facing a possible 30-year retirement. The most popular of them combine growth potential and asset protection with flexible guaranteed income options. And the flexibility built into many of today’s features means that older clients can plan and take their income while still taking advantage of potential market growth.

What about those who’ve already retired?Retirement looks different now. According to the Society of Actuaries Annuity 2000 mortality table, today’s 65-year-old couples face a 25 percent chance that one of them will live to age 97 or beyond. And remember that the survey results revealed that boomers expect to retire at about age 63 and that the Matures surveyed actually retired at about a mean age of 60. At these ages, they still need the growth potential of equities in retirement — to keep up with inflation and to maintain their lifestyle. Even those in their late 60s and their 70s (who may well live another 20 to 25 years) might want to maintain some exposure to equities and have the potential to increase their income. Today’s variable annuities can do all this.