As the burden of retirement continues to shift from the employer to the employee, the 10,000 U.S. baby boomers retiring each day are actively seeking products that they can use for financial stability and, specifically, products that give them a combination of principal protection, lifetime income, and a solid rate of return.
New survey results show that a majority of Americans are at-risk of an unstable retirement. According to a new study from my group, the Indexed Annuity Leadership Council (IALC), only 9% are focused on diversifying their portfolio, which is essential to managing financial risk heading into retirement.
Achieving balance can be an uphill battle when basic knowledge is still a gap. The IALC study found that 22% of Americans are not familiar with the most routinely used retirement products that would allow them to diversify their portfolio, such as mutual funds, CDs, and fixed indexed annuities (FIAs).
This is especially troubling for retirees who have their financial eggs in one basket, if they have any savings at all. The median retirement savings of families between ages 56 and 61 is $17,000 according to a report by Economic Policy Institute.
Adding to that lack of knowledge is the myths around FIAs, as it’s difficult to distinguish between what’s myth and what’s fact.
In order to close this knowledge gap and increase financial diversity, let’s break down a few annuity confusion points that might still be out there:
1. The guarantee myth. One in five Americans incorrectly believes a 401(k) allows the holder to receive guaranteed payments throughout their retirement, regardless of how the stock market performs. That’s a dangerous myth, as only annuities can guarantee a steady income for your whole retirement. Specifically, a FIA can provide lifetime income, while also offering principal protection from market downturns.
2. The myth that diversifaction itself creates a guarantee. Do you have clients who say things like, “I already have a well-rounded portfolio that promises high returns.” But, have they considered all the options, and do they recognize that diversification itself does not create a guarantee? FIAs can help create a foundation of conservative growth and can be a valuable piece of clients’ overall financial strategy. To enhance their current savings strategy, clients should seek products that offer balance and enough funds to live on, no matter how long they live.
3. The complexity myth. Another misconception that client bring to meetings often is that certain financial products, including FIAs, are complicated. Help them see that FIAs offer a simple story: growth potential without risk of loss due to market downturns as well as a steady income stream in retirement. In fact, the IALC study also found that almost half of Americans clearly understand FIAs’ main benefit, of providing income for the rest of their lives.
We’ve posted more materials that can help advisors fight FIA myths at http://www.fiafacts.org/.
—Read NAIC Tees Up on Annuity Suitability Models on ThinkAdvisor.