COVID-19 Insights

Mind the (risk) gap: Annuities address fear about risk


While we are all deeply concerned about our health and safety in the face of the current pandemic, financial wellness is also on the minds of many Americans—particularly when it comes to retirement savings. New data from New York Life and Morning Consult found that 64 percent of Americans say their physical health is increasing in priority, while 46 percent say their finances and 37 percent say their retirement are increasing in priority.1


Dylan Huang

Dylan Huang
SVP, Head of Retail Annuities

Even before the global outbreak of the coronavirus, the concept of financial preparedness for retirement was concerning. Why? It’s a major life change, which means retirees need to break decades-long habits. They no longer must wake up at a certain time, commute to work, and continue to build a nest egg.

But retirement also means starting exciting new routines. Sleeping in. Feeling like every day is Saturday. Eating breakfast at a table. Taking a vacation (whether that be at home or elsewhere when it’s safe to travel) without thinking about work email. Spending down your nest egg. It might be hard for retirees to wrap their heads around spending in retirement, but that’s exactly why you built your nest egg.

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 a concept of "minding the risk gap".

How much is too much risk?

Risk tolerance is a personal question and varies based on many factors including your target retirement age, financial goals and other circumstances unique to your situation. The traditional thinking is that investors should de-risk into fixed investments as they age. However, investments considered “safe,” such as bonds, may not provide enough growth to adequately support a fruitful retirement. Although choosing less equity exposure may seem like a safer option, it also means forgoing the opportunity to grow retirement assets. Striking the right balance requires planning. While traditional assets may have worked well in the accumulation years, it’s crucial to explore other kinds of solutions in the decumulation years. Work with your trusted financial professional to explore a range of financial products, including annuities, which provide guarantees that can help give you confidence in retirement.

Balancing risk tolerance with risk need.

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. For some, this means underinvestment in equities can cause them 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 to equities to meet risk need.2 It’s essential to close the gap between the level of risk exposure you may think you need with the level you should have to work towards your desired retirement lifestyle. Work with your financial professional if you think you need to reconsider your risk tolerance.

Seeking growth and protection.

Everyone wants to have their cake and eat it too. In today’s economic environment, investors understandably want to guarantee their nest egg and grow it too. Long-term retirement products, like variable annuities, are one way to grow assets while gaining access to guarantees. With the availability of expertise across asset classes and investment styles, investors can build a diversified portfolio within the variable annuity to meet their financial objectives—tapping into a wide variety of investment options. A variable annuity with the option to purchase a guaranteed minimum accumulation benefit rider (GMAB) offers market participation with protection of your principal in case of a market pullback. 

Looking for income?

If you are closer to retirement or are already retired, having a guaranteed stream of income for life that covers retirement expenses is crucial. Income annuities can be an attractive option because they offer a steady, predictable, “pension-like” income that is not subject to market volatility.  With a possible limited Social Security benefit and with traditional pensions becoming rarer, income annuities allow folks to invest a portion of their portfolio and know their income needs are covered. We see policyholders with a base of guaranteed lifetime income generally are willing to invest more aggressively with the rest of their portfolios.

The importance of addressing retirement risk concerns. Retirement carries financial risks that may be more complex than the risks you face in the accumulation years. Therefore, the range of risks associated with retirement should be understood and accounted for in decumulation planning. Longevity concerns, sequence of returns, and inflation risks can easily derail a poorly constructed plan and risk jeopardizing your desired lifestyle in retirement. 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. There are fees, guidelines, limitations, restrictions and risks when considering an annuity purchase. Variable annuities are subject to market risk, including possible loss of principal. Withdrawals or surrenders may be subject to ordinary income tax and, if made prior to age 59 ½, 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 were 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.  Information for this report was collected from 20-minute online interviews with 302 financial advisors with at least 40% of their clients ages 60 and over.