The Disconnect Between Perception and Reality

RESTON, VA, June 27, 2006 -- While retirement planning has always been a challenge, Americans today face a series of new dilemmas. For many, the most challenging aspect of retirement planning is the fact that the burden of funding retirement is increasingly becoming an individual responsibility.

According to data released today by the National Association for Variable Annuities (NAVA), 81 percent of Americans believe that, aside from Social Security payments, they are almost entirely responsible for ensuring their financial well-being in retirement. This number is up sharply from the results of a study conducted in January 2006, which found that only about 65 percent of working Americans felt this way(1), indicating a growing national belief that individuals must take personal responsibility for their financial futures.

Gone are the days when employers reward long-term company loyalty with guaranteed financial retirement support. Today, even large profitable corporations are increasingly eliminating employee defined benefit plans or limiting employee eligibility, shifting most of the burden of funding retirement to the individual.

Yet surprisingly, when asked if they believe that their current or future employer would offer a guaranteed pension plan, 49 percent of all respondents who have not yet retired answered yes.

According to Mark Mackey, president and CEO of NAVA, this discrepancy in Americans' understanding of today's new retirement realities is an issue that must be addressed. "We live in a climate where a number of highly visible, blue-chip companies are no longer offering pensions to new employees, and one would expect other companies to follow suit. While it's encouraging to see that most Americans understand that they must take greater personal responsibility for their financial futures, they must also come to terms with the fact that fewer and fewer companies are offering pension plans."

Tips for Achieving Financial Retirement Security To help Americans ensure that they will have sufficient income to cover their retirement expenses, NAVA is proposing three easy to remember "rules" as building blocks for sound financial retirement planning. Many existing retirement rules are outdated, so it is important that retirement-minded Americans take into consideration today's new retirement realities. The "Retirement Income Rules of Thumb" are: 100 Percent Rule -- Past analyses have indicated that retirees can live on 70-80 percent of their pre-retirement income. However, given rising health care costs and longer, more active lifestyles, you will most likely need 100 percent or more of your pre-retirement income in retirement. 15 Percent Plus Rule -- Saving is the starting point to building your retirement income plan. However, forget the old rule that says you should save 10 percent of your pretax income each year. With the decline in pension plans and higher retirement-related expenses, you should plan on saving a minimum of 15 percent per year -- possibly much more if you are starting to save later in life. Once a Year Rule -- It is important that you review your retirement income plan regularly during retirement. Goals, activities and expenses will change as you advance in years, and inflation and market conditions may also change, which may have a significant impact on your retirement income. A good rule of thumb is to sit down with a financial advisor once a year to review your plan and make any necessary changes.

Additional data released by NAVA sheds more light on Americans' feelings about this issue:

• More income, more confidence - Fifty-two percent of Americans with household incomes of $25,000 or more are expecting their employer to provide a pension plan; only 40 percent of those making less than $25,000 hold the same belief.
• More education is needed - Younger Americans are misguided in their expectations for pension plans, despite growing up in an era in which employer pension plans are the exception, rather than the rule. Fifty percent of respondents aged 18 to 34 believe their employer will offer a pension plan.
• More women are expecting pensions - More women than men (51 percent vs. 47 percent) said they are counting on company pension plans to provide retirement income.

Regardless of where Americans stand on this issue, individuals can live a financially comfortable lifestyle in retirement with proper planning, according to John Huggard, faculty member at North Carolina State University. "The smartest way to fill the gap left by traditional pension plans is to use existing financial vehicles to generate income in retirement," said Huggard. "With 401k plans and IRAs, as well as annuities, you are able to accumulate assets tax-deferred. In addition, annuities can be a great way to protect your retirement assets from market downturns."

An annuity is a financial retirement vehicle offering a combination of insurance benefits, tax-deferred savings and guaranteed lifetime income payments. Variable annuities allow individuals to invest in a variety of underlying fixed and equity funds, and provide returns based on the performance of these funds. Valuable insurance features include beneficiary protection in the form of the guaranteed minimum death benefit, and living benefits which protect against downside market risk. These benefits provide consumers with the confidence to stay invested in the market where the highest returns have traditionally been. A variable annuity also offers the ability to convert retirement savings into a steady "paycheck" for life, similar to pension plan payments.

According to NAVA, the best thing Americans can do to be prepared is to begin taking the steps necessary to create a retirement plan, with the help of a professional financial consultant, to ensure that they will have sufficient income to cover retirement expenses.

The retirement data was generated by Kelton Research in April 2006 for NAVA. A broad national cross-section of 1,000 respondents was polled via telephone between April 24 and April 27. The survey has an error rate of +/- 3.1 percent.

About the National Association for Variable Annuities

NAVA is a non-profit trade association located in suburban Washington, D.C. NAVA provides a variety of services to the industry including educational forums, research and conferences aimed at furthering the development and understanding of fixed and variable annuities, income annuities and variable life insurance. NAVA also maintains and supports an educational website for consumers at www.RetireOnYourTerms.com.

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