While attending the 2012 Life Insurance Conference in Orlando Florida from April 23-25, NUL Associate Editor Michael Stanley sat down with LIMRA, LOMA and LL Global President and CEO, Robert Kerzner to discuss industry trends.
NUL: What is the biggest risk facing retirees and pre-retirees?
R. K.: Actually, there are two: not enough savings and longevity.
Our research shows that 70 percent of all U.S. households have less than $100,000 in investable assets. If you look at pre-retirees (those ages 55-70 within five years of retirement), the numbers are much more stark. LIMRA research reveals that less than half of pre-retirees have adequately saved for retirement and less than a third feel confident about their retirement preparedness.
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So there is not much gas in the tank to start. It gets worse—people are living longer and facing many more risks in retirement than generations before. While statistics show that most retirees can expect to live more than 22 years into retirement, LIMRA’s surveys show that 65 percent of pre-retiree five to 10 years away from retirement estimate their longevity window as 20 years or less. Retirees have a more realistic view of longevity, with a majority estimating they will live 20 years or more. But a significant number, 34 percent of those retired three to five years, also hold to the 20 years or less estimate.
This is a critical issue in developing a financial plan that will ensure lifetime income. If they get it wrong, they are at risk of setting themselves up for retirement’s worst-case scenario – still alive but with no more checks arriving in the mailbox.
Here’s the troubling thing – most pre-retirees say that they’ll just work longer but in actuality, the majority of people don’t retire when they plan – many involuntarily. So their back-up plan is fundamentally flawed.
As an industry, we have got to get the message about systematic savings to consumers much earlier and then, when they are approaching retirement, we have to help them develop a retirement plan that includes the lifetime income stream they need.
NUL: Can you explain why longevity is a much bigger concern now (more people retiring with the benefit of pensions, etc).
R.K.: First of all, people are living longer and will have many more years in retirement. For example in 1970 people spent an average of 18 years in retirement by 2005, it was 23 years.
As I mentioned earlier, our research suggests that people simply haven’t saved enough money for retirement and underestimate the length of time they will need to make the savings they do have last.
We estimate that current retirees will have to get 40 percent of their retirement income through their savings and we expect that number to increase as future generations approach retirement.
NUL: How do advisors effectively communicate the longevity risk to younger generations?
R.K.: Our studies indicate advisors understand the severity of the issue far better than consumers. Advisors need to show consumers the facts and really help them understand the real possibility of living in what I like to call ‘retirement hell’ – living longer than your money lasts and not being able to have the retirement of your dreams.
We know from research conducted in 2009 that retirees were using their advisors primarily to help them manage assets. Only 34 percent were going to their advisors for help with retirement planning. But that is changing.