Investors apparently are eager for financial protection, but financial professionals continue to underestimate how much their clients are looking for protected income in retirement, according to a new study.
As a joint research effort with both investors and financial professionals, the inaugural Protected Retirement Income and Planning Study by annuity proponents the Alliance for Lifetime Income and CANNEX finds that a majority (71%) of all younger investors have some interest in purchasing annuities as part of their overall retirement income plan.
Nearly all investors (91%) say it is important that their retirement income plan is designed to provide a guaranteed income payment or principal protection, while more than half of investors (56%) who have an employer-sponsored retirement savings plan are at least moderately interested in investing in an annuity through their employer plan.
And while most investors are interested in financial protection, the survey finds that Gen X investors (aged 45-54) are three times more likely than those age 65 and older to express extreme interest in purchasing an annuity as part of their retirement income plan.
This trend apparently begins with younger Baby Boomers (age 55-59) whose interest in using annuities as part of their retirement income plan grows by 49%—increasing to 55% from 37%, when compared to investors in their early 60s.
Having a source of protected income beyond Social Security is highly correlated to investors’ confidence in their retirement preparedness, according to the findings. Of those who are “protected” with either a pension or an annuity (66%), 92% are confident they will have the income they need to cover expenses in retirement.
“Unfortunately, there’s still a large gap between what investors say is important to them and what financial professionals think is important,” says Jean Statler, CEO of the Alliance for Lifetime Income,” who notes that a majority of investors (55%) say protecting income is “very important” to them, compared to just 39% of financial professionals.
Adviser Perspectives
That said, financial professionals still recognize the need for protected income in retirement, with more than three out of four saying the concept of protection is “important.”
While this number is already high, the study contends that investor sentiment suggests that protected income must play an even larger role in financial professionals’ strategies to meet the needs of their current or potential clients. It notes, for example, that 84% of investors who have an annuity are very satisfied with their financial advisor compared to 74% of those who do not have an annuity.
Meanwhile, financial professionals reported having had conversations about income planning with 8 out of 10 clients who are age 55 or older. The research suggests that this trend will become even more pronounced as the country approaches “Peak 65” in 2024, when more Americans will turn the traditional retirement age of 65 than at any other time in history.
Among those who have not yet discussed strategies for getting income from their assets with a financial professional, the survey found that younger investors—aged 45-54—are the most interested in doing so.
Those retirement planning conversations have also been changing as Americans and their financial professionals must plan for volatility and an uncertain economic landscape. The study notes that nearly two-thirds (65%) of financial professionals reported having changed their approach to retirement planning in the past year. Low interest rates (71%) and reduced return on bonds (49%) were the top two reasons cited for making a change, followed by COVID-19 pandemic forces (38%) and changes in client risk profiles (26%).
Among financial professionals whose retirement planning approach has changed moderately or a great deal in the last year, 45% say they are utilizing annuities more in their clients’ accounts for income purposes, 41% are using annuities more in the last year for asset growth and protection, and 19% are using them more for tax deferral.
The study was conducted in March and April and includes surveys of 1,519 investors age 45-75 with more than $100,000 in investable assets and 602 financial professionals, spanning registered investment advisors to national wirehouses.
