As the coronavirus continues to impact public health and the economy, Americans are grappling with navigating new personal, professional, and financial circumstances in the short-term while still planning for long-term goals like retirement. Whether you’re one of the thousands of Boomers turning 65 every day1 whose retirement is not far from reach, or a Millennial trying to establish the foundation of a financial plan for your young family, there are several things to consider in today’s environment. We sat down with Dylan Huang, Senior Vice President and Head of Retail Annuities, to learn more about how Americans should be thinking about retirement planning in this environment.
Dylan Huang (DH): People face unique risks once they reach retirement, including the risk of depleting their nest egg too quickly (withdrawal risk), the risk that their nest egg won’t last the full length of retirement (longevity risk) and the risk that the timing of investment returns will negatively impact how long the portfolio lasts (sequence of returns risk). You only get to retire once, so it makes good sense to work with a trusted professional to lead you through the complexities and risks of the decumulation phase.
DH: Because the market is cyclical, it will eventually provide an opportunity to benefit from the upside as the economy is likely to recover over time. For those in or nearing retirement, recent market losses will likely mean your portfolios are under pressure (part of sequence of returns risk), which suggests it’s a good time to focus on income planning and ensuring you have both enough equity exposure to generate sufficient returns and guaranteed income to cover basic expenses. If your retirement is still well down the road, now is a good time to take a step back and review your long-term strategy and meet with your trusted financial professional to find a solution that can provide protection for your investment(s) while still having some equity exposure for when the market recovers.
DH: Risk tolerance is personal and varies depending on your unique situation. Your target retirement age, your financial goals and other circumstances will help you determine how much (and what types of) risk makes the most sense in your situation. The traditional thinking is that investors should de-risk into fixed investments as they get older, however investments considered "safe," such as bonds, may not provide enough growth to adequately support the retirement lifestyle you envision. So, although choosing less equity exposure may feel like a safer option, it also means forgoing some opportunity to grow retirement assets. We recommend identifying an approach that helps close this "risk gap." Striking the right balance requires planning. With your financial professional, consider solutions like variable annuities that enable you to access the market potential of equities but with investment protection features that can be purchased to give you the courage to invest.
DH: With interest rates near zero, investors should be looking for safe places to hold and grow their assets. Bonds aren’t providing much, if any, income in the current environment, while guaranteed income products like income annuities hedge against the various risks of the market and interest rates by providing a set paycheck for life that can cover basic expenses.
DH: Going forward, we anticipate people will better understand and appreciate the value of guaranteed income as part of their overall retirement plan. COVID-19 has served as a wake-up call, reminding investors that products with built-in stability – which tend to be less attractive to folks during a bull market – are the key to helping them ride out market shocks. Looking ahead, I think there will be greater interest in risk diversification solutions to help weather future volatility.
DH: Yes - in a low-rate environment like the one we are experiencing, annuities are actually more valuable. This is because of mortality credits, which are unique to annuities and represent a larger portion of payouts as interest rates drop. Bonds, CDs, and other fixed income investments do not have mortality credits so their value in generating retirement income drops faster as rates fall.
DH: The value of human guidance can’t be matched – especially when it comes to your peace of mind and ideal retirement. Meet (virtually) with a trusted financial professional to determine your risk tolerance against your risk need and what plan makes the most sense for you and your family.
Learn more about the role of guaranteed products and how you can approach retirement, whether it’s right around the corner or a ways down the road.
1Baby Boomers Retire, 12/29/2010 https://www.pewresearch.org/fact-tank/2010/12/29/baby-boomers-retire/
All guarantees referenced are dependent on the claims-paying ability of the issuer.
This material contains general information only and does not take into account an individual's financial circumstances. This information should not be relied upon as a primary basis for an investment decision. Rather, an assessment should be made as to whether the information is appropriate in individual circumstances and consideration should be given to talking to a financial professional before making an investment decision.
Annuities are long-term financial products used for retirement purposes. “Investment protection features” or accumulation benefit riders are optional and made available for an additional fee. These 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
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Variable annuities are issued by New York Life Insurance and Annuity Corporation (NYLIAC) (a Delaware Corporation), and 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