How do you measure retirement income success?

The LIMRA Secure Retirement Institute recently surveyed retirees and pre-retirees to get a sense of their preferences in retirement products. The results provide some interesting insights into the respondents’ thinking and how advisors can better position the solutions they offer.

The survey found that investment growth, flexibility and guaranteed income have greater appeal than asset management control. According to LIMRA’s Industry Trends: “When asked to name the most important products or features they wanted in an income plan, 60 percent of retirees and pre-retirees said they would like an income that had the potential for investment growth. Flexibility in changing the amount of income was cited among 55 percent and just over half said income that is guaranteed for life was most important to them.”

The survey asked respondents why they chose particular features. The reasons clearly support the results: “On income growth, the top reason cited was the expectation of living a long time in retirement. The top reasons for choosing income flexibility were the uncertainty of future expenses and having money for emergencies. Retirees and pre-retirees who prefer a guaranteed lifetime income said they chose this feature for peace of mind.”

The findings offer lessons for product manufacturers, according to Matt Drinkwater, associate managing director with the organization. Retirees and pre-retirees are significantly concerned about restrictions on their spending and the long-term impact of inflation—they don’t like being locked into a flat income. That means inflation-adjusted products should be in demand but there’s a catch, he notes. Although consumers say they want inflation protection in products like annuities, their buying habits don’t always support that claim.

He cites an example. An annuity buyer investing $100,000 in a contract is offered a flat $7,000 per year for life or $5,500 in the first year that can potentially increase with inflation. Despite the indicated desire for inflation protection, he says, buyers tend to select the higher initial income:  “So, there’s this discrepancy in practice between what actually happens in the sales process and what our research, at least in the abstract, indicates is truly important to people.”

These findings also have several implications for retirement advisors. “I think that the study’s results support the idea that a mix of products offering the combinations of … upside potential, flexibility and guarantees, those will be the most attractive to current and future retirees,” says Drinkwater. “The products that lock people into a fixed flat income with no ability to increase, no flexibility, to me those are less likely to constitute a major portion of retirement income though they can be a component.”

There is no single solution for every retiree, he adds. Effective retirement advisors will need access to and an understanding of products that provide guarantees as well as those offering upside income potential and flexibility. Advisors who can meet these multiple goals will be in a better position to “comprehensively address the income needs and preferences of their clients,” he adds.