Consumers buy insurance for their homes, cars–why not retirement? Prudential demonstrated in a white paper released Monday what could happen to investors’ retirement prospects if they didn’t plan for the various risks that could affect their income.
Investors’ abilities to work and generate income are assets that should not go overlooked, Prudential said in the paper. Even though the chance of premature death or a disability that prevents an individual from working is small, the consequences are “significant.” Life and disability insurance protect against those consequences.
“Life insurance helps families manage the risks of not living as long as expected, while guaranteed retirement income products help Americans manage the risk of outliving savings in retirement,” Bob O’Donnell, president of Prudential Annuities, said in a statement.
After retirement though, when income is generated not through an investor’s ability to work but their investments and savings, they face risk from longevity, uncertainty and sustained low interest rates. According to the paper, for a 65-year-old married couple there is a 50% chance that one of them will live to 94.
“While the majority of Americans insure their most valuable assets in order to safeguard against significant financial loss, many don’t think to insure their ability to generate lifetime income,” O’Donnell said. “Today’s guaranteed income products were designed to help protect retirees from running out of income in retirement, regardless of market conditions or increased longevity.”
To examine the impact of those risks on retirement, Prudential performed a case study using data from Ernst & Young’s insurance and actuarial advisory services practice and retirement analytics model.
“Jean” is a 65-year-old woman with $300,000 in financial assets and no future retirement income protection. The portfolio has a typical 60/40 equity bond mix and an investment management fee of 1%. She will take annual distributions of $15,000 to supplement her Social Security benefits.