Prudential Annuities' Kent Sluyter says we need to find ways to generate regular income in retirement and not simply count on living off accumulated savings.
By Kent Sluyter
Americans are not just living longer, they’re living younger, active lives. That’s a good thing.
But it also presents a problem. Americans are facing a silent, growing crisis. Retirement is no longer an end-stage; it’s a transition point. And as Americans live longer, active lives, they could have a greater chance of running out of retirement savings.
A 2017 survey by the Society of Actuaries found that maintaining a desired quality of life and paying for long-term care and healthcare continue to be top concerns for both pre-retirees and retirees.
The key is to adopt an income-mindset as opposed to the long-accepted accumulation mindset. We need to find ways to generate regular income in retirement and not simply count on living off accumulated savings from 401(k)s, and other savings vehicles. Annuities can be a critical component to a retirement income strategy.
That’s why 24 companies, including Prudential, recently established the Alliance for Lifetime Income with the goal of promoting greater understanding of how annuities can protect retirement income and help grow retirement savings. In turn, consumers can make informed decisions about the options that are right for them.
But the annuities market is at an inflection point. Annuities are passed over by many consumers and investors because they are often perceived as expensive and unnecessary. Annuity sales fell 8 percent in 2017, according to LIMRA data. Observers attribute much of the drop to the Department of Labor’s Fiduciary Rule that governs the way financial professionals sell and market annuities. The rule made it less attractive for many to sell annuities and created a great deal of media coverage that amplified existing negative perceptions of them. Annuities have a reputation of being complex, which increases the risk of their being misunderstood. However, annuities can serve a critical purpose within a retirement portfolio among a combination of strategies, investments and products.
Faced with a prolonged low interest rate environment, companies like Voya Financial, The Hartford and MetLife have sold off their annuities businesses. At Prudential, we are doubling down on our commitment to annuities.
Here’s what we see:
Recent equity market volatility is making consumers nervous. Combine that with better clarity from the U.S. Department of Labor about the Fiduciary Rule, and annuities are once again becoming more attractive. The outlook is improving. Industry-wide annuities gross sales for the first quarter of 2018 were $1.7 billion, a 5 percent increase from the prior quarter and a 19 percent increase compared with the year-earlier quarter. Current industry expectations are for a slight uptick in sales for the full year.
The 2017 Language of Retirement study found most Americans favor financial strategies that offer guaranteed lifetime income. Ninety percent of all consumers who responded to the survey are very or somewhat interested in receiving lifetime income, which is what an annuity can provide.
The industry has evolved beyond traditional variable annuities, offering new, more flexible options such as fixed indexed annuities, which can provide protection and are tied to one or more indexes, rather than direct equity performance.
The bottom line is that protected retirement income can help provide much-needed peace of mind for many Americans. A study by the Center for Retirement Research at Boston College found that having a defined benefit plan that provides a lifetime annuity has a positive impact on the well-being of retirees, compared to having no pension or even just a defined contribution plan.
Consumers and their advisors need to plan for the life they expect to live and the demand for income planning has never been greater. Annuities can supplement a retirement savings plan with optional lifetime income benefits. “Insured income” can fill expense gaps if they live longer.
At Prudential, our aim is to expand our annuity solutions to ensure we have the right product for the right client. But we’re looking beyond that. Our goal is to address a wider spectrum of needs. We want to help consumers, and their advisors, to develop a 3-dimensional retirement planning strategy that includes both savings and income. It’s also about more than just the product design itself. It’s about the industry bringing more complete solutions, matching powerful, yet simple product design with expert service experiences to change the conversation around retirement.
The Prudential Insurance Company of America, Newark, NJ