SVP, Head of Retail Annuities
Even against the backdrop of economic challenges, most people are looking for ways to improve their financial wellness, particularly when it comes to retirement savings. Data from New York Life and Morning Consult found that 37 percent of people polled say that retirement is an increasing priority for them.1
Why is financial preparedness for retirement a common concern? Retirement is a major life change, which means retirees need to break decades-long habits: They no longer need to wake up at a certain time, commute to work, and build a nest egg.
But retirement also means starting exciting new routines: Sleeping in, feeling as if every day is Saturday, eating breakfast at a table, vacationing (whether it’s a staycation or traveling abroad) without worrying about emails from work. One of the biggest changes is the shift from saving for retirement to spending down retirement savings. It can be difficult for retirees to wrap their heads around spending those funds, but they were saved to be spent in retirement.
How can you ease into this new mindset? Explore ways to help you feel confident and in control of the retirement planning process. It starts with the concept of “minding the risk gap.”
Risk tolerance is a personal matter. It varies based on many factors, including your target retirement age, your financial goals, and other circumstances unique to your situation. The traditional thinking is that investors should de-risk into fixed investments as they age. But investments considered “safe,” such as bonds, may not provide enough growth to adequately support a fruitful retirement.
So, while choosing less equity exposure may seem like a safer option, it also means forgoing the opportunity to grow retirement assets, and that carries its own risks. Striking the right risk balance requires thought and preparation. While traditional assets may have worked well in the accumulation years, it’s crucial to explore other kinds of solutions in the “spending down” years. Work with a trusted financial professional to explore a range of financial products, including annuities, that can give you confidence in retirement.
Many investors have a disconnect between risk tolerance and risk need in the years leading up to retirement. A fear of losing your hard-earned nest egg could be holding you back from potential market gains and may keep you from getting the growth you need to adequately fund your retirement years.
Underinvestment in equities, for example, could cause some people to fall short of their retirement goals. A study from Greenwald and Associates and Diversified Services Group found that most advisors (55%) believe that a quarter or more of their clients are insufficiently allocated in equities to meet risk need.2
It’s essential to close the gap between the level of risk exposure you may think you need and the level you should have to work toward your desired retirement lifestyle. Work with a financial professional if you think you need to reconsider your risk tolerance.
We all want to have our cake and eat it too. Investors, understandably, want to protect their nest egg from losses, but they also want it to grow.
Long-term retirement products, like variable annuities, can give you the confidence to grow assets by giving you guarantees. Investors can build a diversified portfolio within the variable annuity to meet their financial objectives—tapping into a wide variety of investment options. And a variable annuity comes with the option to purchase a guaranteed minimum accumulation benefit rider, giving the purchaser market participation, along with protection of principal if there is a market pullback.
Having a guaranteed stream of income in retirement that can cover a portion of retirement expenses is important. Income annuities can be an attractive option because they offer a steady, predictable, “pension-like” income that is not subject to market volatility. Social Security will play a significant role in retirement, but it will not provide enough to live on alone. Traditional pensions, which used to work well in conjunction with Social Security, are becoming rare. But retirees can cover the gap by investing a portion of their portfolio in an income annuity to make sure their income needs are covered. As an added benefit, retirees with a base of guaranteed lifetime income are generally willing to invest the rest of their portfolio more aggressively.
Retirement carries financial risks that may be more complex than the risks faced in accumulation years. So, the range of risks associated with retirement should be understood and taken into account when you prepare to spend down your retirement savings. Longevity concerns, sequence of returns risks, and inflation risks can derail a poorly thought-through strategy and jeopardize your desired lifestyle. The key is knowing your objectives and getting sound guidance to help you implement strategies that address risk concerns and your overall financial objectives.
Guarantees are based on the claims-paying ability of the issuing insurance company.
Annuities are long-term financial products used for retirement purposes. Guaranteed minimum accumulation benefit riders are optional and made available for an additional fee. These are fees, guidelines, limitations, restrictions, and risks to bear in mind when considering a variable annuity purchase. Variable annuities are subject to market risks, including possible loss of principal. Withdrawals or surrenders may be subject to ordinary income taxes and, if made prior to age 59½, may be subject to a 10% IRS penalty. Your financial professional can provide costs and complete details.
Please consider the investment objectives, risks, charges, and expenses carefully before investing in a variable annuity. The prospectus contains this and other important information and can be obtained from your financial professional. Be sure to read it carefully before investing.
Annuities are issued by New York Life Insurance and Annuity Corporation (NYLIAC) (A Delaware Corporation). Variable annuities are offered by registered representatives of NYLIFE Securities LLC, member FINRA/SIPC, a Licensed Insurance Agency. Both NYLIAC and NYLIFE Securities LLC are wholly owned subsidiaries of New York Life Insurance Company, 51 Madison Avenue, New York, NY 10010.
1These findings are from a poll conducted by Morning Consult on behalf of New York Life from March 23-26, 2020, among a national sample of 2,200 adults. The interviews were conducted online, and the data was weighted to approximate a target sample of adults based on age, race/ethnicity, gender, educational attainment and region. Results from the full survey have a margin of error of plus or minus 2 percentage points.
2These findings are from a poll conducted by Greenwald and Associates/DSG in September 2018 with a sample drawn from a list of advisors provided by Discovery Data, a leader in compiling financial services data. Information for this report was collected from 20-minute online interviews with 302 financial advisors with at least 40% of clients at age 60 or over.