How Annuities Soothe Retirement Anxiety
From: insurancenewsnetmagazine.com
One day, advisor Joe Lucey received a call from a commercial airline pilot who wanted to come in and talk about financing retirement. The pilot, whom we’ll call George, said he had heard Lucey talking about retirement planning on Secured Retirement Radio, a weekly show that Lucey hosts. That commentary prompted George to call for an appointment.
When George explained his purpose, he seemed calm enough, recalled Lucey, who is president of Secured Retirement Advisors in St. Louis Park, Minn. But it didn’t stay that way. George, then age 58, explained that he had been planning to retire at his airline’s mandatory retirement age of 65. But he had developed a medical problem. The resulting surgery was successful, but George realized that early retirement may now be in the cards. He and his wife had not planned for that, so his question was: “What do I do?”
It turned out that there were a lot of concerns lurking underneath that simple question: When to retire? When to take Social Security? What to do with the 401(k)? What happens if the airline’s pension plan fails? And what if his current return to good health changes quickly, even before the target retirement date arrives?
Then George’s “biggest fear” spilled out, Lucey said. That fear was, “Will we outlive our savings?”
Lucey set to work and helped the couple establish an income plan — which includes but is not limited to an annuity with a lifetime income rider — to address that very question. More on this later.
Retirement Risk and Anxiety
George is not the first to feel this anxiety and he won’t be the last. For decades, researchers have been documenting the risks people face as retirement nears. In recent years, they’ve increasingly zeroed in on baby boomers and subsequent generations, since the majority of them will not have traditional private pensions and will likely need to cobble together a patchwork of other financial approaches.
Risk isn’t always a bad thing. In small or measured doses, it can spark excitement, energy and enthusiasm. But if risk threatens to sap financial security, it can become a feeding ground for fear and anxiety. It is this threat to retirement security that policymakers, researchers, retirement plan providers and retirement advisors are addressing.
As long ago as 2006, before the last major recession, the Government Accountability Office (GAO) was warning that boomers and future generations will face serious challenges in this area.
The retirement security of these generations “will likely depend increasingly on individual saving and rates of return as guaranteed sources of income become less available” the GAO wrote in a report that year. “This reflects the decline of coverage by traditional defined benefit (DB) pension plans, which typically pay a regular income throughout retirement, and the rise of account-based defined contribution (DC) plans.”
GAO and a host of other researchers have identified a myriad of such risks over the years. They point to uncertainties about future Social Security benefit levels, declines in private-sector DB plans, difficulty in choosing and managing DC plan assets, cost increases for medical and long-term care, inflation, financial responsibilities for aging parents, outstanding loans (mortgage, school loans, credit card, etc.), rising housing and/or relocation expenses, and unanticipated “shock events,” among many others.
Is it any wonder that the Senate began a series of hearings on “Retirement (In)Security in America” in October 2010?
Five-term Sen. Tom Harkin, D-Iowa, then chairman of the Senate Committee on Health, Education, Labor, and Pensions and now retired, opened up the subject by talking about risk: “Nearly half of the oldest baby boomers who will turn 65 next year are at risk of not having sufficient retirement resources to pay for basic retirement expenditures — food, fuel, housing, clothing, that type of thing — and uninsured health care costs.”
Some people think exposure to risk is less problematic once a person enters the post-retirement period of life. But the Society of Actuaries (SOA), which tracks retirement risks closely, said risk continues.
In fact, the SOA keeps a Managing Retirement Risks chart (http://bitly.com/innm0515-soa) on its website that identifies and discusses the most prevalent risks in the post-retirement period of life. The current chart includes 15 biggies, among them longevity, inflation, interest rates, stock market, death of spouse, unexpected health care needs and costs, and ability to live independently, as well as bad advice, fraud or theft.
It’s not only retirement professionals who say these risks are weighing heavily on Americans. Consumers themselves say this. In 2013, for example, both pre-retirees and retirees told SOA researchers what concerned them most about retirement. First was keeping the value of savings and investments up with inflation (77 percent of pre-retirees and 58 percent of retirees); second was having enough money to pay for adequate health care (73 percent and 46 percent); and third was having enough to pay for long-term care (68 percent and 52 percent).
Runners-up included the possibility of depleting savings (66 percent and 41 percent) and maintaining a reasonable standard of living for the rest of life (65 percent and 41 percent).
