The United States continues to face a well-documented retirement crisis. Social Security benefits are decreasing, traditional pension plans are disappearing and more responsibility is being placed on individuals than ever before. Meanwhile, Americans are living longer and struggling to meet their savings targets amid rising market volatility and a low interest rate environment.
As if retirement was not difficult enough before, we now have this crisis being compounded by Covid-19. The overall impact of the pandemic is still evolving, but we are beginning to see initial evidence that the pandemic will make difficult financial challenges for retirees and pre-retirees worse. In fact, according to Kiplinger’s 2020 retirement survey, nearly 60% of retirement savers have withdrawn or borrowed money from an IRA or 401(k) during the pandemic, often to cover basic living expenses. The same survey found that 50% of workers increased their estimated retirement age due to the impact of the pandemic on their finances.
Given these challenges and the expectation that the pandemic will continue to drive financial complications, it is unsurprising that generating retirement income is a daunting task for most Americans. However, if there is anything this experiene has taught us, it is that life can change quickly, so having a plan is a prudent consideration for investors of all sizes. When it comes to generating income in retirement, the often-overlooked annuities market deserves a closer look.
Annuities, which are available in many different structures, are tax-deferred financial instruments designed to help address current retirement challenges with principal protection and lifetime guarantees. Ultimately, annuities can allow end-investors to sleep well at night knowing that their principal investment is safe and can generate an attractive return. They provide unique benefits that help all types of investors prepare for, and live in, retirement.
Whether a client is currently retired and in need of income, or just starting on the path of saving for retirement and wants to invest for long-term growth, there are different types of annuities that can be implemented as part of a well balanced portfolio to help them achieve their goals.
Despite these benefits, many financial professionals have shied away from using annuities to help clients generate guaranteed income in retirement due to their perceived complexity and disjointed sales process. In essence, the industry has long lacked the proper tools and resources for advisors to confidently and efficiently transact in the marketplace.
While this has hindered the broad-based adoption of annuities over time, the tides are turning as the rise of technology is beginning to reshape the market by simplifying and streamlining the annuity investment process.
Technology platforms are providing financial professionals a turnkey, out-of-the-box solution to better understand the dynamics of specific annuity structures and how they can meet the investment objectives of their clients. They also deliver a cohesive sales experience that allows advisors to manage and track all products transacted from one centralized location.
These platforms provide access to all available types of annuity offerings and sophisticated modeling and analytic techniques to help predict how a product may perform for a client in the future. This type of analysis was impossible for annuities before the modern wave of technology, and it gives advisors the confidence to offer more income-generating solutions to help clients reach their retirement goals.
Ultimately, by embracing technology platforms that offer an annuity solution, advisors can put their clients on a path toward a more rewarding and secure retirement, and provide an added value service that differentiates them in a crowded field.
While both equity and fixed income markets are becoming increasingly difficult to navigate, advisors and clients alike would be well served to explore the numerous benefits of annuities and their role in helping to create steady streams of income that will last a lifetime.
Should advisors have access to an online platform, such as Luma, that is completely objective and helps you learn, buy and track annuities, it is in their best interest to embrace that platform to not only combat clients’ retirement challenges by offering a wider range of income producing investment options, but to also be the best advisor they can be.
Jay Charles is the Director of Annuity Products at Luma Financial Technologies, a global technology platform for financial professionals to help manage and transact structured products and annuities.