Columbus, OH —September 14, 2020— As the pandemic’s impact
collides with powerful systemic pressures putting more responsibility on
individuals to save for retirement, Americans’ plans for retirement have been
hit by the perfect storm. Roughly-three fourths of investors (72%) say the
COVID-19 pandemic has had a negative impact on how long they are able to live
off their current retirement savings. Nearly two-thirds of investors (63%)
expect to require 20 to 30 years of income in retirement—but less than half
(47%) think they can live off their savings for that long.
These are among the latest findings revealed in Nationwide’s
sixth annual Advisor Authority study, powered by the Nationwide Retirement Institute,
reflecting the responses of more than 1,800 advisors, financial professionals
and individual investors with investable assets of $100,000 or more.
“Recent market turbulence and changing regulations have put
a new lens on retirement needs. The pandemic is driving greater volatility,
confidence in Social Security is eroding, access to defined benefits are on the
decline and systemic shifts continue placing greater responsibility—and greater
pressure—on individuals to fund their own retirement,” said Eric Stevenson,
President of Nationwide Retirement Plans. “As defined contribution plans have
become a predominant vehicle for retirement savings in the workplace, the
SECURE Act will now help more plans to adopt in-plan guarantees, a crucial new
solution with the potential to provide what Americans are looking for in the
post-COVID world: A guarantee.”
The Setting Every Community Up for Retirement Enhancement
(SECURE) Act removes existing barriers for plans adopting in-plan guarantees,
to protect retirement savings and provide guaranteed income for life within
defined contribution plans, including 401(k)s and 403(b)s, as well as
Governmental 457(b) plans. Passed with bi-partisan support in late 2019, the
SECURE Act is considered the most comprehensive retirement legislation since
the Pension Protection Act of 2006, providing more opportunities for
participants to access retirement planning solutions that can help them not
only reach retirement, but also live in it.
Financial Professionals Predict Strong Adoption for In-Plan
Guarantees
Following the passage of the SECURE Act, nearly two-thirds
of advisors and financial professionals (64%) say they are likely to adopt
in-plan guarantees to provide guaranteed income within clients’ defined
contribution plans. More than one-third (39%) of advisors and financial
professionals currently use in-plan guarantees to protect clients against
outliving savings.
When asked for which net worth segment of clients they are
most likely to recommend in-plan guarantees, advisors and financial
professionals say Emerging High Net Worth clients ($500,000 to less than $1
million in investable assets). Likewise, Emerging High Net Worth investors are
the net worth segment most likely to incorporate in-plan guarantees within
their defined contribution plans. It is also important to note that Millennial
and Gen X investors are the generations most likely to adopt in-plan guarantees,
as detailed below.
In-plan guarantees are also proving popular with employers.
Following the passage of the SECURE Act, 60% of employers also say they would
consider offering employees lifetime income solutions according to a 2019
survey by Willis Tower Watson.
Millennials And Gen X Also Favor In-Plan Guarantees
The need for guaranteed income among investors who are ages
55 and younger is clear, as they face greater responsibility to save for their
retirement than preceding generations, and they are likely to spend more years
in retirement. The SECURE Act will not only give Millennials and Gen X
investors the opportunity to potentially save more, by taking advantage of
tax-deferred and tax-free accumulation over time, it also gives them the
opportunity to generate a protected stream of lifetime income in retirement by
leveraging in-plan guarantees.
While potential adoption is lower among the overall
population of investors, with only 43% likely to incorporate in-plan guarantees
within their defined contribution plans and nearly one quarter (22%) saying
they do not know, investors who are ages 55 and younger are far more likely to
adopt in-plan guarantees as a result of the SECURE Act. In fact, two-thirds of
both Millennial investors (65%) and Gen X investors (66%) are likely to
incorporate in-plan guarantees within their defined contribution plans,
compared to only 28% of Boomer investors. While 24% of investors overall
currently use in-plan guarantees within their defined contribution plans, more
Millennial investors (30%) and Gen X investors (37%) use in-plan guarantees
than Boomer investors (17%).
SECURE Act Drives Use Of Annuities
By raising awareness about the importance of guaranteed
income, the SECURE Act is also driving greater usage of annuities. As a result
of the SECURE Act, 70% of advisors and financial professionals also say they
will increase their usage of annuities. Likewise, investors ages 55 and younger
are more likely than the overall population of investors to say they will
increase their usage of annuities as a result of the SECURE Act.
While only 42% of the overall population of investors plan
to increase their use of annuities due to the SECURE Act, adoption among
younger investors is far greater. Nearly three-fourths of Millennial investors
(70%) and nearly two-thirds of Gen X investors (63%) are likely to increase
their use of annuities due to the SECURE Act, compared to only one-quarter of
Boomer investors (25%).
“The fallout from COVID-19 continues to challenge investors
and threaten the security of their retirement, driving greater demand for
guarantees both inside and outside of their qualified plans,” said Craig
Hawley, head of Nationwide’s Annuity Distribution. “In fact, months after the
coronavirus was declared a pandemic, 85% of investors continue to say they can
do all the right things to manage their finances, yet still be blindsided by
outside events.”
More than three-fourths of advisors and financial
professionals (79%) are likely to choose an annuity as part of a holistic
financial plan to protect clients against outliving their savings, according to
Advisor Authority. In addition, 84% of advisors and financial professionals say
annuities with income guarantees are important for supporting a sustainable
withdrawal rate that will generate income in retirement and protect against
outliving savings.
Likewise, more than half of investors (54%) are likely to
choose an annuity as part of their holistic plan to protect against outliving
their savings, including 71% of Millennial investors and 69% of Gen X investors
vs 44% of Boomer investors. Notably, more than half of investors (53%) say they
would feel more secure if a portion of their portfolio was invested in an
annuity to protect against outliving their savings, including 73% of Millennial
investors and 65% of Gen X investors vs just 42% of Boomer investors.
Protecting Retirement Is A Top Priority
More than 9 in 10 advisors and financial professionals (94%)
have a strategy in place to protect their clients against outliving their
savings, according to Advisor Authority. Social Security (59%), dividend
yielding stocks (55%) and variable annuities with living benefit riders (55%)
are their top three solutions. In addition, the vast majority of advisors and
financial professionals (83%) have a strategy in place to generate guaranteed
income in retirement for their clients.
In comparison, roughly 8 in 10 investors (81%) have a
strategy in place to protect themselves against outliving their savings.
Investors are somewhat more likely than financial professionals to say they
rely on Social Security (68%), and among investor’s top three most common
solutions, they also cite defined benefit plan/pension (44%) and dividend
yielding stocks (39%). Likewise, 80% of investors also have a strategy to
generate guaranteed income.
“To confront today’s complex dynamics, planning and
professional advice are more important than ever,” said Craig Hawley. “More
than 9 in 10 investors say that having a plan for their investments helps them
feel in control, even if they can’t plan for everything, and their number-one
reason for working with an advisor is to feel more confident in their financial
future.”
Nationwide’s sixth annual Advisor Authority study powered by
the Nationwide Retirement Institute explores critical issues confronting advisors,
financial professionals and individual investors—and the innovative techniques
that they need to succeed in today’s complex market. This is the first in a
series of ongoing releases from the sixth annual study.
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