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Retirement Planning > Saving for Retirement

Ignorance is not bliss

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Many consumers don’t know enough about the most common products marketed to help address their retirement savings and income needs, accentuating the challenge facing life insurance and annuities providers struggling to connect with prospects, a survey by Deloitte’s Center for Financial Services confirmed.

For example, nearly 40 percent surveyed by Deloitte don’t know anything about annuities or understand how they work, with the percentage even higher among younger respondents.

See: Revealed: The 5 biggest barriers to retirement planning

In addition, 25 percent either don’t know about non-term life insurance products — or if they are aware, don’t know what these products can do to bolster retirement savings and income.

Six in 10 either don’t know anything about target date mutual funds, or say they have heard of the product but don’t understand how it works. The percentages showing lack of awareness are consistently high across age and income segments.

Deloitte’s survey of nearly 4,500 consumers from a wide range of age and income groups found a basic lack of knowledge about retirement-related products to be one of five barriers preventing life insurers and annuity companies from more effectively reaching prospects.

Our prior articles on this survey focused on the first two barriers — conflicting financial priorities as well as a failure to communicate effectively with potential prospects, particularly via the workplace. (Additional blogs over the next two weeks will address mistrust of financial institutions and a “do-it-myself” mentality prevalent among consumers.)

The knowledge barrier

So, how might life insurers, annuities providers and their intermediaries overcome this product knowledge barrier?

While most consumers may not need to know everything about the products they invest in for retirement, some familiarity is likely necessary to increase the buyer’s comfort level to make investment decisions and commit to a plan to bolster their overall retirement security. The challenge is how financial services providers can accomplish this.

One possibility is to re-engineer or rebrand some existing products to provide greater transparency and clarity, so that consumers have a better idea how they can facilitate their retirement security — particularly for more recently introduced options.

This might help overcome the fact that of those surveyed who had been contacted by financial institutions in the last two years about retirement planning, 25 percent took no action based on these interactions because the products and services offered did not meet their needs.

For longstanding lines such as annuities and non-term life insurance, more aggressive campaigns to educate consumers about how the products work and what benefits they offer could draw more prospects over time. But consumers also might respond in greater numbers to more simplified, repackaged or even rebranded versions of these standard products.

A hybrid solution

In the spirit of holistic retirement planning, it may be worthwhile to consider additional hybrid product designs that address multiple financial priorities, such as efforts to market combinations offering long-term care options within a life insurance policy.

Also, a dynamic portfolio approach to product allocation that accounts for changes in life goals, risk aversion and life stage both in the asset accumulation and decumulation phases could be the next frontier.

Perhaps no one provider may be able to accommodate all of the various features sought by consumers because of each company’s business focus and concentration on related capabilities. Thus, a potential way to overcome this problem might be to partner with other financial services firms offering complementary product lines.

For example, life and annuity providers could partner with health insurers to offer their retirement-related products via private health insurance exchanges created to help consumers meet the coverage mandates under the Patient Protection and Affordable Care Act.

This opportunity is particularly intriguing because a significant percentage of survey respondents said saving to pay medical- and long-term care expenses is a leading retirement goal. However, a large portion of respondents believe that no matter how much they save, their health-care-related expenses will overwhelm their retirement nest egg, which may in itself be a factor discouraging many individuals from trying to plan for retirement in the first place.

This is also where the value of working with a financial professional, who may offer comprehensive advice while coordinating products and services from multiple providers under a single, holistic financial plan, could be emphasized. Life insurance agents or financial planners could also prove to be invaluable when it comes to educating consumers about retirement-related products.

If consumers aren’t aware of all of the options at their disposal in planning for retirement, or don’t comprehend how some of these products function, the chances of making sound choices for their retirement planning are likely to be reduced. (The same can be said of those who choose to “do it myself” without understanding what solutions are available in the market. But that barrier will be discussed in the sixth and final part of this series.)

In our next article, we’ll examine how financial institutions might overcome a fourth barrier discouraging or preventing many people from planning for retirement — a wide-ranging mistrust of financial institutions and their intermediaries.

In the meantime, a full report on the survey results and their implications — “Meeting the Retirement Challenge: New Approaches and Solutions for the Financial Services Industry”—can be accessed with this link.

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