Filed Under:Life Insurance, Life Planning Strategies

ING survey points to greater focus on income planning

Working with a financial advisor greatly increases the odds that individuals will calculate their future retirement income stream based on current savings.
Working with a financial advisor greatly increases the odds that individuals will calculate their future retirement income stream based on current savings.

Eight in 10 working-age Americans are prepared to give up spending today to secure their financial future, but nearly four in ten believe they will run out of retirement savings, according to new research.

These are among the key findings of an ING U.S. “Retirement Income Redefined” survey, released during a July 23 webcast hosted by ING U.S. executives. The phone-based survey, conducted by ORC International in June, polled 850 men and women who are 30 years of age or older.

Nearly two-thirds of the survey respondents agree they would need $1 million to have a comfortable retirement, while an additional third peg the figure at $500,000 or less. But one-third of retirees polled say they’re experiencing a lower standard of living in retirement than when they were working.

And 8 percent of pre-retirees anticipate having a reduced standard of living in retirement.

“We think these findings are telling,” said webcast presenter David Bedard, president of ING U.S.’ annuities business segment. “They demonstrate possible gaps between the perceptions and the reality that many people will have with their own retirement security.”

To address the shortfall, he added, ING is betting that baby boomers and other younger generations will increasingly place their retirement savings in fixed indexed annuities, products that capture a portion of equity market gains while also (like traditional fixed annuities) offering downside protection against market slides.

The company’s execs are not alone in this belief. In 2012, Bedard noted, sales of fixed indexed annuities totaled $34 billion—almost 2.5 times the level of 2003—riding an annual growth rate of 10 percent. Indexed annuities now account for 15 percent of all annuity sales, up from six percent just 10 years ago.

Underpinning the rise in consumer interest are new product launches, which grew to 49 last year from 24 in 2009. Bedard said that ING expects this number to rise in 2013.

“The focus of [planning conversations] has shifted from saving for retirement to finding way for retirees to generate an income stream they can’t outlive,” said Bedard. “The next wave of growth and innovation in this space will be around hybrid strategies and longevity income features.”

Value of advisors

Rich Linton, ING U.S.’s president of individual retirement markets, observed during the webcast that working with a financial advisor greatly increases the odds that individuals will calculate their future retirement income stream based on current savings. Citing results from the Retirement Income Redefined study, he noted that 87 percent of those who work with an advisor have made this determination, in contrast to the 59 percent who haven’t engaged one.

The study also finds that 70 percent of married/committed partners have discussed the need for guaranteed income with their spouses. Generally, men are more likely (74 percent) than women to have had the discussion.

Survey respondents split evenly in respect to the importance of different strategies for retirement savings. The top two include growing savings (19 percent) and automatically converting savings into a lifetime guarantee stream of income.

The latter strategy, the study notes, is most important among those with children under age 18 in the household (24 percent vs. 16 percent); and those who do not work with a financial advisor (20 percent vs. 12 percent) compared to all respondents.

In reference to the study’s finding that Americans are willing to trade current for future income, Linton noted that retirement income planning should accommodate basic needs and “household shocks” (such as emergency healthcare expenses), as well as “wants” (the desired lifestyle in retirement) and “wishes” (planned legacy gifts to people and causes).

He added that to successfully serve the U.S’ “graying population”—the leading edge of baby boomers turned age 65 in 2011, and an estimated 10,000 boomers are crossing the retirement age threshold daily—advisor must become proficient in both wealth accumulation and income distribution needs. They must also become skilled at developing comprehensive, holistic financial plans (of wealth accumulation and retirement income are but two components) based on a “solid, repeatable” process.

Employer-sponsored plans

Rick Mason, president of corporate markets at ING U.S. retirement, observed that the industry’s growing focus on income distribution planning is extending into the workplace. He said that about 12 percent of employers now offer a guaranteed income solution as part of their mutual fund line-up.

“This percentage is expected to more than double in the next year—a clear indication that plan sponsors recognize the benefits of these solutions,” he said. “The growth has been largely driven by small employers, for whom advisors can help articulate benefits and review details of solutions. But interest also is high at large, Fortune 500 companies.”

He noted that more than half of ING’s survey respondents “like the idea” of auto plan features like target-date funds: mutual funds that automatically reset the asset mix (stocks, bonds and cash equivalents) in a portfolio according to a selected time frame appropriate for an investor.

Investors, he added, also want plan flexibility and control: More than eight in 10 (83 percent of respondents) want to be able to access plan savings to meet emergency needs.

Underpinning the new in-plan 401(k) options is the need to address both market risk and longevity risk. More than 75 percent of plan participants, said Mason, are concerned about their long-term retirement security after having left the workforce.

By investing in an in-plan, indexed annuity income option, he said, plan participants can grow retirement savings in tandem with market gains while also securing a guaranteed income benefit for life.

“Companies will be increasingly involved in promoting the retirement readiness of workforces, as employers themselves stand to benefit,” Mason said in closing. “Those who defer retirement because a lack of readiness drive up benefit costs for employers and slow the entry of new, younger people into the labor force.”

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