NAIFA Blog

Dire Projections for Retiring Americans Highlight Need for Insurance and Financial Products and Services

A recent Washington Post article offers a grim assessment of future U.S. retirees' financial prospects. Drawing on a variety of economic data and reports, the article contends, “For the first time since the New Deal, a majority of Americans are headed toward a retirement in which they will be financially worse off than their parents…”

Some points from the article:

• The recent economic downturn destroyed 40 percent of Americans’ personal wealth
• Americans’ retirement savings are approximately $6.6 trillion below where they should be (that’s about $57,000 per household)
• 53 percent of employed Americans 30 and older will not be financially prepared to maintain their standard of living in retirement if they continue on their current paths, according to the Center for Retirement Research. This is up from 38 percent in 2001 and 30 percent in 1989.
• Americans from age 55 to 64 have a median retirement account balance of $120,000, which would fund an annuity paying only $575 per month in retirement
• Medicare premiums are likely to increase from 12.2 percent to 14.9 percent by 2030

What the Post Article Didn't Say

These figures demonstrate the importance of ensuring that financial planning services and products remain available and affordable for middle-market Americans. They highlight the role insurance and financial advisors can play in helping their clients secure their financial futures.  

At a time when personal retirement saving is falling well short of the mark, lawmakers face increasing pressure to reduce benefits paid by government programs like Social Security and Medicare. Life insurance, annuities and employer-sponsored retirement programs will have to fill the void for many Americans.

It is not a time for Congress to make these insurance and retirement products, which 75 million American families look to for financial security, less attractive or beneficial. Changing the tax status of life insurance or retirement savings products would do much more harm than good. It would damage the very products that often help keep Americans self-sufficient in their later years while reducing their reliance on government programs.

NAIFA's Boyle Talks to the Wall Street Journal on Tax Reform

Diane Boyle

“After the cliff: Roths, munis, diversification,” a post on the Wall Street Journal’s MarketWatch blog, offers insight from NAIFA Vice President of Federal Government Relations Diane Boyle on how tax reform in 2013 may impact retirees and those now saving for retirement.

Boyle told the Journal that “retirees and those saving for retirement need to prepare for entitlement reform that could include, potentially, greater Medicare means-testing, an increase in the Medicare eligibility age (phased in over a long time, perhaps 20 years), and a change in the way cost-of-living adjustments are calculated for Social Security benefits (for inflation-adjusted tax rules, too)—the use of the so-called chained CPI.”

• Read the entire MarketWatch post here
• More information from NAIFA on tax reform
• NAIFA video on the history of taxes and life insurance

NAIFA members will meet in Washington in April for NAIFA's Congressional Conference, a grassroots lobbying event that will focus on tax reform and educating lawmakers on the importance of life insurance products.

Registration for the Congressional Conference is open.

2008-2009 Recession Shaped Americans' Retirement Concerns

Largely due to their experiences during the recent recession, 22 percent of retirees and 30 percent of pre-retirees believe they need more professional advice than they are getting about investing and saving for retirement, according to a study by the Society of Actuaries.

Half of the retirees in the survey and nearly three-quarters of the pre-retirees said they need to save more money for retirement. More than half of the retirees and two-thirds of the pre-retirees said they need to do a better job of planning and managing their finances.

The SOA attributes much of the financial concern among retirees and pre-retirees to the economic recession.

While retirees and those approaching retirement age represent an important market for financial advisors, they are obviously not the only one. A separate study by the Pew Research Center found that Americans in their late 30s are more concerned about their ability to provide financially for themselves in retirement than people in any other age group. Some 53 percent of people aged 36 to 40 are “not too” or “not at all” confident that they will have the financial resources to sustain themselves through retirement.

In 2009, a similar Pew survey found that only 18 percent of those 36 to 40 had these concerns. In that poll, people between the ages of 51 and 55 were most concerned about their retirement finances.

What’s changed since 2009? The recession zapped the financial resources of many adults in their late 30s. The median wealth of people in this group fell by $56,000 (inflation-adjusted) between 2000 and 2010. This represents a 56 percent decline (much of it due to lower home values), the largest by far of any age group.

The 2008-2009 recession left many Americans concerned about their ability to pay for retirement. They are simply not confident that they will meet their financial goals. The good news, according to these surveys, is that a significant portion, at least among older Americans, is open to receiving professional investing and retirement savings advice.

Preparing for the Best-Case Scenario

The good news is that it’s likely we’re going to live longer than we think we are. The bad news? We probably aren’t financially prepared to do so.

A survey by the Society of Actuaries (SOA) found that many people don’t understand the meaning of “average life expectancy,” and more than half of retirees and those approaching retirement underestimate the number of years they are likely to live.

In the 2010, the average life expectancy for newborn Americans was 75.7 years for males and 80.8 years for females. What most people who consider these numbers fail to grasp is that men who reach age 65 in at least average health have a 40 percent chance of living to 85. Women in the same situation have a better than 50 percent chance.

This could have serious consequences for people saving for retirement who fail to account for the potential that they will live longer than expected.

The SOA study findings present a solid case on behalf of annuity products, which protect against instability in the stock market and offer a guaranteed income for life – even if you live longer than you think you will.

Yet, only a third of retirees and 27 percent of pre-retirees have a retirement product, either through an employer plan or an individual annuity, that will provide them with income for life and protect them against outliving their savings, the SOA notes.

Still, individual annuity contracts paid more than $45 billion in benefits in 2010, providing those who do benefit from them with a solid financial foundation to help them make the most of the years they may not have realized they had.

• See also, "Mary Beth Franklin: Clients short on understanding of longevity risk," in InvestmentNews.

Retirement Investors Looking for Stability, Open to Getting Help

Only 8 percent of Americans say that growing their retirement savings is more important than protecting them, while 35 percent say protecting retirement assets is a bigger concern. This and other results from a recent survey by Charles Schwab & Co. shows that U.S. investors have serious interest in limiting the risk in their retirement investments.

They survey found that risk management is particularly important to younger Americans aged 18-34, some 29 percent of whom said they plan to completely avoid investing in the stock market over the next six months, instead opting for more stable investments. Only 11 percent of older Americans said they intend to follow the same course.

A major takeaway message from the Schwab survey may be that investors’ concerns over market instability and asset protection presents opportunities for advisors who offer risk-protection products, such as annuities.

And this opportunity is heightened by the fact that a large segment of the public is open to working with financial professionals. The Schwab survey also found that 26 percent of Americans plan to seek to help managing their retirement savings within the next six months.

Interestingly, the survey found that 42 percent of investors are concerned about the potential impact of future legislation on their retirement accounts.

NAIFA Supports Bipartisan Congressional Resolution on Retirement Products

NAIFA President Robert Miller issued the following statement on H. Con. Res. 101 to express “the sense of the Congress that our current tax incentives for retirement savings provide important benefits to Americans to help plan for a financially secure retirement”:

“Tax-deferred retirement products, like annuities, Individual Retirement Accounts, and 401(k)s, are the bedrock retirement products for the middle-income Americans served by NAIFA members. That’s why NAIFA commends the bipartisan efforts of Reps. Jim Gerlach and Richard Neal and more than one hundred of their colleagues in the House of Representatives who sponsored a concurrent resolution supporting the current tax incentives for retirement savings.

“Legislators face difficult decisions as they confront the federal budget deficit, and NAIFA is glad that these Members of Congress are aware that we can’t solve the problems of today by making it more difficult for middle-income Americans to plan for the future.”

• NAIFA GovAlert on the resolution
• The Resolution

55 Members of Congress Tell DOL to Preserve Investors' Access to Financial Products and Services

NAIFA commends Rep. Judy Biggert (R-Ill.) and 54 of her colleagues in the House of Representatives who today sent a letter to Department of Labor Secretary Hilda Solis asking that any forthcoming rule changing the ERISA definition of fiduciary “recognize the broad range of financial products and services currently available and avoid costly new regulations” that would reduce consumers’ retirement investment options.

DOL withdrew a previously proposed rule after an outcry among members of Congress and advocacy groups, including NAIFA, that the rule would have harmed Americans struggling to save for retirement.

“The Department of Labor should certainly listen to these members of Congress, who insist that any fiduciary requirement cannot make it more difficult for financial advisors to help clients, especially those in middle- and lower-income brackets, save for retirement,” said NAIFA President Robert Miller. “NAIFA has long said that the department needs to be wary of imposing an overly rigid fiduciary rule with unintended consequences that would raise costs and reduce access to advice for millions of middle class retirement savers.”

The Department is expected to re-propose a fiduciary rule early next year.

One Thing's for Sure: Americans' Financial Future Is Uncertain

A lot of Americans don’t feel good about their financial security, and they are particularly vulnerable when it comes to preparing for retirement. Three recent surveys show the depth of the problem and highlight the need for better financial planning.

A survey commissioned by New York Life found that more than half of adults aged 30 and above feel that they are financially “under-protected” when they consider their savings, emergency funds and life insurance coverage. Nineteen percent say they are “severely under-protected,” while only 46 percent say they feel adequately protected. Among parents with at least one child under age 18, only 36 percent say they are financially protected.

From the prospective of small business owners, some 75 percent say that Americans are so unprepared for retirement that it has reached “crisis levels,” according to a survey by Nationwide Financial. Yet only 19 percent say they offer their employees a 401(k) plan and only 11 percent say they plan to offer 401(k)s within the next two years. At the same time, 78 percent of the small business owners say offering a retirement plan would help them recruit and keep qualified employees. The most recently cited reasons for not offering a plan: the business is too small and administering the plan would be too expensive.

Finally, a survey by Franklin Templeton Investments found that 31 percent of Americans say their biggest concern in retirement is “running out of money.” Other top concerns include: health care expenses (27 percent) and changes that would reduce or delay Social Security benefits (15 percent). Of workers aged 35-44, 41 percent have invested in an employee-sponsored retirement plan; only 23 percent say they currently work with a financial advisor. Of those between age 18 and 24, 25 percent say they plan to rely on Social Security as their primary means of support during retirement. Three-quarters of people ages 65 or older say they are more concerned about the volatility of investments than they were prior to the 2008 recession.

Insurance and financial advisors are key to making sure Americans don’t fall further behind financially and to turning the situation around. When it comes to life insurance, studies have shown that people prefer to buy and are more likely to buy when they work with a professional agent. For middle-market investors, NAIFA members, in particular, serve an important role providing financial advice and services. And this service pays off: A report by consulting firm Aon Hewitt found 401(k) investors who sought investing advice saw annual returns nearly 3% higher than those who invested without advice.

See also:

USA Today: "Many Have Little to No Savings as Retirement Looms"

Is 80 the New 65?

Nearly three-quarters of middle class Americans surveyed by Wells Fargo said they likely will continue working in their retirement years, with 25 percent saying they will “need to work until at least age 80.” These findings prompted the company to declare in a press release that “80 is the new 65.”

The survey covered a lot of territory and produced a number of interesting results:

• Middle class Americans have saved a median of $25,000 for retirement.
• Their median estimate of the amount they will they will need in retirement is $350,000, which is lower than most expert estimates.
• Almost 30 percent of people in their 60s have less than $25,000 in retirement savings.
• When asked how much savings they will need for out-of-pocket health care costs during retirement, those surveyed gave a median response of $60,000, with only 20 percent estimating $100,000 or more. A separate study out of Boston College estimated that $197,000 for a retired married couple is more realistic.
• 79 percent said they would like their employers to provide personalized advice to help them manage their 401(k) investments. The percentages were higher for younger employees aged 25 to 29 (86 percent) and 30 to 39 (81 percent).
• 78 percent said they would like the option to convert retirement accounts to annuities that provide fixed monthly payments.

 

Dear Super Committee: Preserve Retirement Savings Incentives

Twelve men and women in Washington, D.C., have embarked upon a treasure hunt of sorts. Behind closed doors and with little fanfare up to this point, the Joint Select Committee on Deficit Reduction, commonly known as the “super committee,” is searching every corner and crevice of the federal budget for $1.3 trillion in spending cuts and/or revenue increases over the next 10 years.

It's undeniably a tough job. They accepted this challenge as part of the deal brokered over the summer to raise the U.S. debt ceiling and prevent the United States from defaulting on our loans.

But as members of Congress turn over the nation’s couch cushions in search of cash, it is important for everyone to keep in mind that real Americans are in need of money, too. Especially if they ever want to retire.

A recent survey by the Employee Benefits Research Institute (EBRI) found that half of all Americans aren’t confident they will have enough money to live comfortably in retirement. An additional 36 percent say they are only somewhat confident.

Statistics bear out these feelings. Fidelity Investments reported earlier this year that the average 401(k) balance was only $72,700. A separate EBRI study from 2009 found that 401(k) participants aged 60-69, people who are often either retired or right on the doorstep, had an average balance of $144,000. That’s not enough money to get most people through retirement, and the results include only those who are participating. Much more troubling, around 4 of every 10 workers have no retirement savings, whatsoever.

Wherever the super committee comes up with its deficit reductions, we cannot afford any plan that would exacerbate the challenges Americans now face as they try to provide for the future financial security of themselves and their families. In fact, we need to encourage employers and workers to contribute more to retirement savings.

Fortunately, a number of members of Congress agree.

Reps. Jim Gerlach (R-PA) and Richard Neal (D-MA) have introduced a concurrent resolution in the House of Representatives that touts many of the benefits of retirement defined contribution plans and states:

1. tax incentives for retirement savings play an important role in encouraging employers to sponsor and maintain retirement plans and encouraging participants to contribute to such plans;
2. existing tax incentives have increased the number of Americans who are covered by a retirement plan; and
3. a reformed and simplified Tax Code should include properly structured tax incentives to maintain and contribute to such plans and to strengthen retirement security for all Americans.

We couldn't agree more. NAIFA encourages every member of Congress to support the Gerlach-Neal resolution and to sign on as cosponsors.