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Study: Interest in Guaranteed Lifetime Income Solutions Gaining Momentum

Concerns about health care costs and running out of money in the later stages of retirement has led to increased interest in guaranteed lifetime income solutions, the findings in a new survey show.

In fact, 73% of survey respondents now consider guaranteed income as a highly valuable addition to Social Security, compared to 61% a year ago, according to the fourth annual Guaranteed Lifetime Income Study from Greenwald & Associates and CANNEX.

The survey of 1,003 pre-retirees and retirees aged 55-75 with more than $100,000 in household assets was fielded in February.

More than half of the respondents (54%) express concern about being able to afford long-term health care expenses or losing a portion of their retirement savings in a market downturn (52%), while nearly half (46%) are worried about outliving their retirement savings.

Not surprisingly, individuals without pension income are more likely to be highly concerned about outliving their retirement savings (38%) compared to those with pension income (25%), which as the authors note, is an important consideration as the proportion of people who retire with a pension decreases each year. And consistent with other findings, women also report being much more concerned about outliving their assets (37% highly concerned) than men (22%).

The current bull market apparently has fueled some retirement confidence, however. The study shows that despite these concerns, nearly 8 in 10 respondents have some degree of confidence in their ability to maintain their lifestyle in retirement until age 85. Overall, more than half of respondents (53%) express a high degree of confidence, but their confidence drops significantly (38%) if they live five years longer than their expected longevity and even further, to 31%, if they live an additional 10 years.

The findings also show that respondents expect a substantial cut in income when they retire, but don’t anticipate it will change significantly during their retirement. Nearly 4 in 10 pre-retirees said they expect to receive annual income of less than $50,000, 23% anticipate income of $50,000-$75,000, and 16% expect to receive $75,000-$99,000. Less than 20% expect to receive more than $100,000 in retirement income.

Many respondents also believe their assets will grow during retirement, when they start to draw down their savings. More than half (53%) of respondents aged 65-69 believe the value of their assets will be higher in 10 years, as do 48% of those between ages 70 and 75. Yet only 19% and 13% of respondents in these same age cohorts believe their assets will be lower in value.

Just Don’t Call Them Annuities

In evaluating lifetime income products, two thirds of respondents rated the benefit of “protection against longevity risk, peace of mind and making it easier to budget” as positives, while “access and too many terms and conditions” were the top negatives.

A strong majority of respondents (70%) believe financial advisers have a responsibility to discuss guaranteed lifetime income to meet their retirement needs, and if they do not, that this would be a reason for many to consider changing adviser relationships.

Moreover, two thirds of respondents who work with an adviser say they are “highly satisfied” with the advice they receive, and when retirement income strategies have been discussed, clients express an even higher level of satisfaction. Despite this, only half of those currently working with an adviser said they have had a conversation about retirement income strategies.

Even though clients have mostly heard positive commentary about guaranteed lifetime income products and annuities from advisers and financial institutions, respondents report that they are receiving mixed messages from other sources. Their perception is that most of the coverage from the media and online sources they read was either neutral or negative.

Perhaps not surprisingly, when the word “annuity” is used, a third of respondents express lower interest in the same product. But when guaranteed income products are framed in the context of covering essential expenses, their perceived importance rises, particularly among women.

“There are significant operational challenges the financial services industry still needs to overcome to broaden access to annuities, in addition to addressing negative perceptions around them,” explains CANNEX President Gary Baker. “Clients clearly value the peace of mind guaranteed income brings, but the study shows annuities are often not part of the planning conversation.”

The report emphasizes that one of the key takeaways is there is no “one-size-fits-all” or consensus when it comes to guaranteed lifetime income product discussions and what works for each client.

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