How many women and Gen-Xers have calculated how much money they will need to retire? To what extent does working with a financial advisor increase individuals’ retirement confidence? What are the tax implications of boomers who are retiring later, saving more and planning better?
Answers to these questions, among many others, are forthcoming in the Insured Retirement Institute’s “IRI Fact Book 2014.” The 198-page report, an all-encompassing guide to information, trends and data in the retirement income space, explores the state of the industry, annuity product innovations, and solutions for generating immediate and future income needs.
The report also details consumer use and attitudes towards annuities, spotlights trends among baby boomers and generation X women, examines boomer expectations for retirement this year, and delves into the regulation and taxation of annuities.
The following is a sampling of key findings unveiled in the report.
Fact 1: Three-quarters (75 percent) of households that own fixed annuities claim balances of less than $100,000, while 68 percent of variable annuity owners report balances below $100,000.
For households with between $500,000 and $2 million in investable assets – the sweet spot for advisors serving the “mass affluent market,” more than a quarter have a fixed annuity balance of $1-$19,000 (28.1 percent) or $20,000-$49,000 ($24.4 percent)
Others with investable assets between $500,000 and $2 million have the following fixed annuity balances:
● $50,000-$99,999: 8.7 percent of owners
●$100,000-$299,999: 15.5 percent owners
● $300,000-$499,999 3.2 percent of owners
● $500,000-plus: 0 percent of owners
Fact 2: Nearly half of households (43 percent) cite guaranteed monthly income payments as the primary reason for purchasing an annuity.
This fact holds true, the report states, among investors with less than $2 million in investable assets. Investors owning investable assets between $2 million and $5 million place the greatest importance on potential account growth (41 percent). The wealthiest investors value insuring portions of their assets (39 percent).
Households with $2 million to 5 million in investable assets cite the following reasons for purchasing a variable annuity:
● 33.7 percent: To generate a guaranteed payment each month in retirement.
● 41.0 percent: To provide a potential for account growth.
● 35.5 percent: To receive tax-deferral on earnings in the annuity.
● 30.7 percent: To provide diversification by adding another type of investment to the portfolio.
● 32.2 percent: To protect assets by insuring a minimum value of payments from the account.
● 17.4 percent: To set aside assets for heirs.
● 16.7 percent: To exchange an old annuity for a new one.
● 5.6 percent: Not sure why I purchased an annuity.
Fact 3: The economy has had a detrimental effect on retirement savings and planning for many women.
The report indicates that few women are confident that they will have enough retirement savings or that they have done a good job preparing financially for retirement.
● 51 percent of Boomer women and 57 percent of Gen-X women have weak or no confidence that they will have enough money to live comfortably in retirement or are unsure.
● Significant numbers of both Gen-X and Boomer women (69 percent and 46 percent, respectively) have not attempted to calculate how much they will need to retire.
● Though expecting personal savings to be a significant source of retirement income, only half of Boomer women with savings have $200,000 or more in retirement savings. And only one-quarter of Gen-X women have $100,000 or more saved for retirement.
● Fewer than half have worked with a financial advisor to plan for their retirement. Those who do seek an advisor report that retirement planning is a top reason.
Fact 4: Working with a financial advisor greatly increases retirement confidence.
● Among those who consult with a financial advisor, 73 percent feel very or somewhat prepared for retirement compared with 43 percent of those who did not.
● Among Boomers who have calculated their retirement savings needs, 44 percent are extremely or very confident compared with 29 percent of those who did not. Among Gen-Xers who completed the calculation, 47 percent are extremely or very confident, compared with 28 percent among those who did not.
● Annuity owners have higher levels of retirement confidence. Among boomers who own an annuity, 53 percent are extremely confident, compared with 31 percent who do not. Among Gen-Xers who own an annuity, 49 percent are extremely or very confident, compared with 31 percent among those who do not.
● 7 in 10 Boomer and 6 in 10 Gen-Xer annuity owners have completed a retirement savings needs calculation. This compares with 44 percent of Boomers and 34 percent of Gen-Xers who do not own an annuity.
● Nearly three-quarters (74 percent) of Boomer and 62 percent of Gen-Xer annuity owners have consulted with a financial advisor. This compares with 35 percent of Boomers and 30 percent of Gen-Xers who do not own an annuity.
Fact 5: Boomers are showing some optimism that their financial situation will improve during the next five years.
The report reveals also that boomers are retiring later, saving more and planning better.
● A quarter of Boomers postponed their plans to retire during the year past.
● 28 percent of Boomers plan to retire at age 70 or later.
● 80 percent of Boomers have retirement savings, with about half having saved $250,000 or more.
● 55 percent of Boomers have calculated a retirement savings goal, up from 50 percent in 2013.
Tax policy implications and positive actions
● Three in four Boomers say tax deferral is an important feature of a retirement investment.
● Nearly 40 percent of Boomers would be less likely to save for retirement if tax incentives for retirement savings, such as tax deferral, were reduced or eliminated.
● Boomers planning for retirement with the help of a financial advisor are more than twice as likely to be highly confident in their retirement plans compared to those planning for retirement on their own.
Fact 6: Most advisors (71 percent) have increased the net number of retirement income clients served during the year past.
The report shows that 60 percent of advisors have modestly increased their net number of retirement income clients, while 11 percent have significantly increased the number. An additional 28 percent and 2 percent, respectively, experienced no change or decreased their retirement income clientele.
The research adds nearly 6 in 10 (58 percent) advisors describe as well developed the processes and capabilities they’ve established for their retirement income clients. An additional 37 percent of advisors believe they have some but not all of the needed processes and capabilities.
Nine in ten advisors say that enhancing their retirement income processes and capabilities is a “priority.” For a majority, the priority level is high (54 percent). Fewer advisors describe the priority level as moderate (37 percent) or low.
Fact 7: Advisors generally rely on a combination of four major investment product categories for retirement income clients: mutual funds, ETFs, variable annuities and fixed income annuities.
For 1 in 3 advisors, all four categories are used in combination. About 2 in 9 advisors use mutual funds, ETFs and variable annuities. Other grouping include mutual funds and variable (1 in 8 advisors), income annuities (1 in 11 advisors), plus mutual funds and ETFs (1 in 12 advisors).
The following is a percentage-based breakdown of the most typical product combinations:
● 38 percent –Fund/ETF/FA/Fixed
● 22 percent –Fund/ETF/VA
● 8 percent—Fund/ETF
● 5 percent—Fund only
● 12 percent—Fund/VA
● 9 percent—Fund/VA/Fixed