Income Needs Drive Retirement Income Product Decisions; But

WINDSOR, Conn., June 1, 2009—While consumers make retirement income product decisions based on their income needs, many of their decisions do not align with their financial goals, according to a recent LIMRA retirement income study.

“What was most striking about the survey was that what consumers said was important in terms of their financial goals and how they behaved did not mesh,” said Marie Rice, LIMRA’s director Retirement Research.  “For example, at least three-quarters of consumers said that creating an income stream from their savings was important yet only about 20 percent said planned to use annuities as a source for retirement income.”

CDs, stocks, money markets and mutual funds top the list of products currently owned by those surveyed. 

The study, conducted in collaboration with Northstar Research Partners, asked consumers to rate their financial priorities.  Not surprisingly, early retirees said they are most interested in staying in their home, whereas pre-retirees are more interested in creating and increasing their retirement nest egg.  Researchers also wanted to find out what matters most in terms of retirement income features.

Moreover, none of the traditional demographic characteristics (affluence, age, sex) moved the preference needle.  

Both retirees and pre-retirees surveyed expressed the desire to create an income from their investments and savings; maintain their current lifestyle; and have the ability to pay for health care expenses throughout retirement.

By doing a needs-based analysis, researchers found that consumers were driven by specific product features based on their self-stated priorities.  But preconceived attitudes about certain retirement income products or features can alter consumers’ choices, undermining their goals.

When asked, 30 percent of consumers had a negative attitude towards annuities.  Yet the most important criterion for their financial goals was having income payments last throughout their lifetime, which annuities are designed to provide. 

Almost 60 percent surveyed consider their investment knowledge level to be subpar and more than 70 percent consulted with an investment professional to help them make financial decisions.

Despite this, the study shows that only 28 percent of consumers surveyed said they have a formal written financial plan and 80 percent are not highly optimistic about their financial future. 

“Clearly, there is a need to continue to educate consumers on the retirement income products and features available,” said Rice. “By conducting a needs-based analysis to help their customers understand their options, financial professionals can show them how to choose the proper retirement income solutions that will meet their financial goals.”

Preliminary findings from the report were presented at LIMRA’s Retirement Industry Conference in April.

LIMRA Contact:

Howard S. Drescher, 860-285-7875, hdrescher@limra.com
Catherine Theroux, 860-285-7787, ctheroux@limra.com

About LIMRA

LIMRA is a worldwide research, consulting and professional development organization that helps more than 850 insurance and financial services companies in 73 countries increase their marketing and distribution effectiveness. Visit LIMRA at www.limra.com.