This article is part of a series of special reports appearing in the March 21, 2022, edition of InvestmentNews.
From the Covid-19 pandemic to the Russian invasion of the Ukraine, the world has lurched from one crisis to the next over the past few years, triggering supply chain disruptions, sparking stock market volatility and altering retirement plans.
For some people, the pandemic meant retiring earlier than planned due to job loss or health concerns. For others, remote working arrangements allowed them to quit their dreaded commute and extend their careers. But whether retiring earlier or later than planned, both new and existing retirees faced the challenge of generating steady income in a low-interest-rate environment.
Traditionally, retirees have relied on a 60/40 investment strategy in which 60% of a portfolio’s assets are invested in stocks for growth and the remaining 40% are invested in bonds to provide income.
But persistent low interest rates have called such traditional rules of thumb into question, including the golden rule of retirement income that directs retirees to withdraw 4% of their nest egg during the first year of retirement and increase future withdrawals to keep pace with inflation. Although interest rates remain stubbornly low, inflation has soared to the highest level in 40 years. Welcome to the “new normal.”
Increasingly, consumers are looking for ways to protect a portion of their retirement investments. But some financial advisers may be underestimating their clients’ appetite for guaranteed income.
An overwhelming majority of investors — 85% — said they’re interested in owning an annuity that guarantees lifetime income or already own one, according to the Alliance for Lifetime Income and Cannex Protected Retirement Income and Planning Study released in December. The survey was conducted among more than 2,000 investors ages 45 to 75.
In contrast, a corollary study of more than 500 financial professionals found just 18% think their clients are extremely interested in an annuity offering lifetime income, indicating that there’s a huge gap in what investors want and what advisers think they want.
“If that gap continues to widen, financial professional are likely to find that clients will go elsewhere for advice,” said Jean Statler, CEO of the Alliance for Lifetime Income, a nonprofit consumer education group.
Women were perhaps most affected by the pandemic as they juggled work responsibilities and family obligations. The experience has changed how many women view their finances.
More than 70% of women investors with investible assets of $100,000 or more who are primary or shared decision makers have a strategy in place to protect themselves from outliving their savings, according to a new Advisor Authority study from the Nationwide Retirement Institute.
“Women investors are not taking their experience living through the Covid-19 pandemic or other financial crisis lightly,” said Ann Bair, senior vice president of marketing for Nationwide Financial. “After experiencing the upheaval of these events, from market volatility to juggling childcare during remote learning, women are being more proactive thinking about and planning for their future.”
(Questions about new Social Security rules? Find the answers in Mary Beth Franklin’s new 2022 ebook at MaximizingSocialSecurityBenefits.com)
More articles from the special section:
Andrew is half-human, half-gamer. He’s also a science fiction author writing for BleeBot.