Wednesday, February 22, 2017

Is Retirement Confidence Misplaced?

By Heath Waddington, Senior Vice President of Sales & Marketing

What a difference seven years makes! Oh... and also one of the longest bull runs in the history of the market. In 2010 Allianz Life Insurance Company of North America commissioned a survey called Reclaiming the Future. The purpose of this survey was to assess attitudes on retirement from the baby boomer generation, and the results were not particularly encouraging. One of the findings that stuck with me was that, when asked “Do you believe there is a retirement crisis in this country”, 92% of respondents answered either somewhat or absolutely.[1] If you look at what was happening at the time, you will remember that the market had started one of the longest bull runs in history, but the wounds of the Great Recession were still very fresh and the losses that many had experienced in the prior two years were still very much on people’s minds. At the beginning of October 2010 when the survey was conducted, the Dow Jones Industrial Average (DJIA) was under 11,000.[2]

Flash forward seven years and the DJIA is now knocking on the door of 20,000 and those who could stomach leaving their money in the market have likely made back their losses and then some. The problem is that often people in this country have short memories and they quickly forget the feeling they had in 2000-2002 and then again in 2008-2009. As a result, confidence in retirement is once again on the rise.
 

In fact, according to the 2016 Retirement Confidence Survey (RCS), 63% of those surveyed stated that they were “very confident” or “somewhat confident” that they have enough money to retire comfortably.[3] That is a huge shift in sentiment from just seven years prior, when the majority felt there was a retirement crisis in this country. If that many people feel confident about their ability to retire comfortably, then is it safe to assume they are right?
 

The answer is probably not. It turns out their “confidence” may not be based in fact. Teacher’s Insurance and Annuity Association of America (TIAA) did their own survey and while their findings about retiree confidence mirror those of the RCS, they also found an alarming lack of knowledge about turning retirement savings into income.[4] For instance, of the 1000 people surveyed ages 18 and older, 65% do not know how much income they will have each month after they retire. Furthermore, 41% are saving 10% or less of their income for retirement, and 28% are not saving anything for retirement.[5] Given this reality, is it time to ask if Americans’ confidence in their ability to retire comfortably is misplaced?
 

Traditionally, Americans looked to three elements that in combination would provide for them in retirement. The first, and bedrock for many Americans are Social Security benefits. We have spoken time and again in our publications about the problems that plague the current system. Social Security was a product of the New Deal and was initially put into place to help the staggering number of senior citizens that were living in poverty as a result of the Great Depression. Over the ensuing decades as our country prospered, Social Security came to function more as a guaranteed pension that could be used in retirement by millions of Americans. As a result, many have come to depend on Social Security benefits as a vital part of their income in retirement. Much has changed from the 1930s until now. Birth rates have dropped and the average life span has increased, which has resulted in fewer people paying into a system that is being asked to support more and more retirees. Current projections show the fund will not be able to pay out full benefits past 2033.[6] Given that reality, it seems likely that at some point Congress will lower benefits, postpone full retirement age, or some combination of both.
 

The second element of retirement was traditionally some type of employer-sponsored plan. This too has seen a big change in the last several decades. This often took the form of a pension or defined-benefit plan. This put the liability of providing the second element of retirement on the shoulders of the employer. As you are well aware, pensions are mostly becoming a thing of the past as employers have looked to get that liability off their books and put it onto their employees in the form of a defined contribution plan, like a 401(k), where the employees are responsible for contributions. While many companies will match up to a certain amount of what their employees set aside in their 401(k), the shift of liability is significant, and as pointed out above, many people are not saving anything for their retirement. A company match on $0 is not worth very much.
 

The third element was the retiree’s own personal savings. As we have shown above, this will likely be the most crucial piece moving into the future, given the problems associated with the other two pieces of the puzzle. Assuming that your clients saved money for retirement in either a qualified retirement plan or on their own in the form of personal savings, one way to help them provide a stream of income after they are finished working may be a fixed annuity. Annuities are the only financial products that can provide a guaranteed income for life. This income can be provided in different ways, but it is unique to annuities. If you are not looking at annuities as a way to provide retirement income for your clients that they cannot outlive, we urge you to call us today at 800.321.3924  and ask to speak to a marketer.
 
Heath Waddington | Senior Vice President of Sales & Marketing
Ann Arbor Annuity Exchange
Ph: 800.321.3924 x140 | Dir: 734.786.6140
hwaddington@annuity-exchange.com

____________________
Guarantees are backed by the strength and claims-paying ability of the issuing insurance carrier.

____________________
[1] “Reclaiming the Future White Paper” Allianz Life Insurance Company of North America (Allianz). Web. May 2016. Accessed on 4 Jan 2017 at https://www.allianzlife.com/~/media/files/allianz/documents/ent_991_n.pdf. p4
[2] Dow Jones Industrial Average (^DJI) Historical Data. Yahoo Finance. Web. Accessed 22 Dec 2016 at https://finance.yahoo.com/quote/%5EDJI/history?period1=1285905600&period2=1288497600&interval=1d&filter=history&frequency=1d
[3] Helman, Ruth, Greenwald & Associates; and Craig Copeland, Ph.D., and Jack VanDerhei, Ph.D.. Employee Benefit Research Institute. “The 2016 Retirement Confidence Survey: Worker Confidence Stable, Retiree Confidence Continues to Increase” Web. Mar 2016. Accessed on 4 Jan 2017 at https://www.ebri.org/pdf/briefspdf/EBRI_IB_422.Mar16.RCS.pdf. p1
[4] “TIAA 2016 Lifetime Income Survey - Executive Summary” Teachers Insurance and Annuity Association-College Retirement Equities Fund (TIAA-CREF). Web. 14 Sept 2016. Accessed on 4 Jan 2017 at https://www.tiaa.org/public/pdf/C33638_Lifetime_Income_ExecSummary.pdf. p2
[5] See note 4
[6] “Fast Facts & Figures About Social Security, 2016” Social Security Administration Office of Retirement and Disability Policy Office of Research, Evaluation, and Statistics. Web. Aug 2016. Accessed on 4 Jan 2017 at https://www.ssa.gov/policy/docs/chartbooks/fast_facts/2016/fast_facts16.pdf. p36


____________________
Designed for Financial Professionals.

AE1069