What has changed in income planning over the past five years? Given that this Income Planning e-newsletter is now five years old, this is a good time to look back and compare.
Our August 2004 inaugural issue carried a feature about how boomers nearing retirement were grappling with two opposing forces–lack of savings versus desire to spend.
The first editorial talked about how the old retirement income image of a three legged stool–pension, savings, and Social Security–may be morphing into a four-legged chair–401(k), savings, part-time earnings, and Social Security.
The first news articles covered: a proposed income annuity incentive bill; how to use variable annuities and variable universal life policies in life cycle plans; the possible creation of indexed income annuities; and how little control people felt they had in the post-recession market of 2004.
Does any of that sound familiar? It does to me.
In August 2009, boomers are still torn over how to finance retirement; the four-legged chair is the dominant model for many retirees; life cycle planning and investment are commonplace; and worry about lack of control over the retirement future clouds the horizon.
However, today’s income planning scene has subtle but important differences. To wit:
Boomer’s notorious lack of savings is still a problem, not only because of the spend-spend-spend lifestyle of yesteryear but also because of layoffs, furloughs, prolonged joblessness, and increased medical costs related to aging and related matters.
But countless surveys tell us that boomers, and many other demographic groups, are now turning away from spend-spend-spend, and for the same reasons.
Now, boomers are into save-save-save–if they have jobs, and even if they don’t. Bank savings rates are up; sales at second-hand-goods shops are up; and consumer buying is so depressed that the federal government offered its Cash for Clunkers rebate allowance program in August to stimulate car purchases. Not all boomers participated in this activity, but news reports indicate that a large percentage of boomers did.
As for the four-legged chair, the recession of 2008-2009 seems to have made that a functional retirement model. Countless reports have detailed how mature workers now say they plan to take Social Security and work at the same time–if they can find work. Gone are the giddy stories about taking early retirement, as early as age 50, for instance. Now, the focus is on coming up with enough money to sustain oneself in the later years–and to fill in the gaps left by the two big recessions of this decade.
As for income planning approaches, annuities still figure into the picture. But there is no longer much talk about using variable annuities for this purpose. Right now, the recession has so unnerved many consumers that they are steering clear of these products and the equities markets in general. Today, the solution of choice increasingly includes fixed income annuities, laddered and packaged in different ways; and many advisors talk about holistic solutions using a myriad of products and services.
What about the sense of control that people have regarding retirement income? Although people seem to worry about this as much now as they did in 2004, there is now an emerging antidote to this worry. That antidote comes in the form of the growing income planning infrastructure that can now provide consumers with service, assistance, products and hope.
For example, there are now many more insurance and financial companies that offer income planning strategies, products and solutions. There are now several industry associations working on this, including some that did not exist in 2004. There are now a host of conferences covering the many aspects and issues of income planning, and more income planning publications too.
Importantly, there are now many advisor organizations that address income planning as part of their regular programming. And there are more advisors who are attending these programs and actually putting toes into the income planning waters.
To be sure, the broad industry has suffered from the financial fallout of the 2008-2009 worldwide recession. Sales are down in many product lines, and advisors say many customers are reluctant to make long-term financial commitments. So, it will take a while for the industry’s various income planning responses to impact positively how confident consumers feel about their retirement future.
Still, fixed annuities are moving at a fast clip and income annuity sales are inching up. That is surely a sign that consumers are voting with their dollars, to secure what they have for the retirement tomorrow.
Also, the insurance and financial services industry has not backed off from offering retirement income products and strategies. No one is saying “that dog won’t hunt.” No one is going back to knitting.
Indeed, it may be that the year 2009, with all its recession-related upheaval, will trigger greater consumer interest in retirement income planning than ever. After all, if people are save-save-saving, what are they saving for? It behooves income planning professionals to help clients figure this out, and to select the best strategies and products to help them achieve their goals. If they do, the income planning picture in the next five years could be very different than today’s.
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-Linda Koco, Managing Editor, Products and Managing Editor, e-Publications
National Underwriter Life & Health