Study Finds Longevity Risk, Participant Education as Opportunities for Service Providers
HARTFORD, CT, May 12, 2009 -- Improved participant education and products that mitigate longevity risk are two of the biggest opportunities for service providers to help employees improve retirement preparedness, according to a recent study by String Financial, LLC.
Among the key findings:
Investors may be more willing to consider mortality-contingent products than conventional wisdom suggests. Low annuitization rates of deferred annuities and the low incidence of life-contingent payout elections are often cited as evidence that mortality-contingent products cannot succeed on a meaningful scale. However, when the question was framed without regard to product, participants were surprisingly willing to consider mortality-contingent options. Participants were asked: "For a portion of your portfolio, would you be willing to trade the ability to leave the remainder of that asset to your heirs upon your death if doing so would allow you to generate a greater amount of lifetime income than you otherwise could?" 30% indicated they "Definitely" or "Likely" would do so; another 40% indicated they "Possibly" would.
Profound disconnects exist between employees' retirement expectations and the likely realities based upon their current behaviors. 51% of participants either could not estimate how much of their salary they could replace in retirement, or estimated the percentage they could replace was less than what they needed, yet 47% of this group remained confident in their ability to maintain their standard of living in retirement.
Participants express confidence, though significant concerns about retirement income remain. Of the 68% of participants that were "confident" in their ability to meet their overall standard of living in retirement, 71% expressed concerns about their ability to generate income to satisfy at least 2 of the 4 retirement income needs identified in the immediately preceding question.
Current investor education efforts are coming up short. Participants' collective view is that educational materials are:
- Difficult to understand: 34% of respondents felt the materials included concepts that were not adequately explained
- A commodity product: 41% of respondents agreed that the materials do not contain information that could not be easily found elsewhere (19% disagreed)
- Ineffective: Only 18% of respondents indicated that the educational resources led to changes in retirement planning behaviors or practices
Insurers and 401k providers appear best positioned to capitalize on these opportunities.
While insurers are uniquely equipped to address longevity risk, to succeed they must "make a critical shift to becoming solution-oriented organizations as opposed to product-oriented business units." As "first responders" to the retirement preparedness crisis, 401k providers must "provide resources which give investors confidence to take action."
A copy of the report, Market Insights: Helping Tomorrow's Retirees Better Prepare Today, is available for download at: http://www.stringfinancial.com/PDFs/Market_Insights.pdf
About String Financial, LLC
String Financial's mission is to improve employees' financial preparedness for retirement by developing financial products to meet retirement income needs and web-based services that simplify retirement planning and provide participants with access to education and advice.
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