Helping Insurers Capture More Retirement Assets

LIMRA has suggested five things insurers can do in order to capture more retiree assets.

A recent LIMRA study reveals that 45% of retirees still have their assets in their retirement savings plans with their employers, most frequently in their 401(k) plans, and almost a fifth of retirees own three or more IRAs in their households.  

Among the survey respondents, 23% said they have relationships with insurance companies. The mass affluent retirees with assets of $100,000 to $500,000 are more likely to have relationships with insurance companies than any other market segments. However, as a whole, retirees have only 9% to 10% of their assets invested in products and services offered by insurance companies.  

Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.

LIMRA suggests: 

  1. Provide online resources.  According to LIMRA consumer surveys, retirees start to think about the decision of what to do with their retirement plan balance well in advance of retirement.  Providing online resources like retirement calculators and checklists can help insurance companies develop relationships with employees approaching retirement and build brand awareness. 
  2. Be responsive and ready to react quickly. Once they retire, those that do roll over their assets move their money fast. Earlier LIMRA research shows majority of retiree assets leave their employer-sponsored plans within the first 12 months of their retirement.  
  3. Provide a comprehensive plan which creates a retirement income stream and addresses other risks retirees face.  Retirees and pre-retirees will typically need to make a series of retirement-related financial decisions starting at age 59 ½, the age at which they can withdraw from their tax-qualified assets without penalty, to age 70 ½, when they must take IRS required minimum distributions (RMD) from their qualified savings. In between, they have to evaluate when to take Social Security benefits and enroll in Medicare and its supplements. All of these financial decisions can be part of a retirement plan.  LIMRA research shows that many investors are buying guaranteed income annuity products at these key age-based financial decision points. 
  1. Reach out to pre-retirees and establish a relationship before they enter retirement.  Existing relationships are critical to securing rollover business. A financial planner or advisor is often the first person retirees or pre-retirees consult regarding the rollover decision if they have an existing relationship. If possible, offering personalized investment guidance can be a way for companies to strengthen relationships and increase their chances of retaining assets. 
  2. Offer guidance about taxes and other required distributions. Retirees both under and over age 70 need help managing their retirement plan assets to ensure they comply with all legal requirements.  Sixty percent of retirees above age 70 who are taking withdrawals are only doing so to meet IRS required minimum distributions and they often take withdrawals through systematic withdrawal plans. The current research finds that most retirees get help from a financial professional or a phone representative to set up the plan. 

The online survey of retirees was conducted in October 2010. Qualified respondents were ages 55 to 79; had been retired for at least one year and had not worked for pay within the past year; and had household incomes of at least $35,000. Furthermore, qualified respondents were personally involved in making decisions about their household savings and investments.

A Balanced Portfolio Can Overcome a Recession

Vanguard research shows that returns of a balanced portfolio, 50% equity/50% bonds, have been statistically equivalent in times of economic recession or expansion since 1926.

This is particularly true of the inflation-adjusted returns, because inflation tends to be higher during periods of stronger economic growth, according to the Vanguard report, “Recessions and balanced portfolio returns.”    

Although it may seem counterintuitive, this similarity in average real returns has occurred because of two typical market patterns: first, the tendency for bonds to outperform stocks during the initial period of economic weakness (a “flight-to-safety” effect), and second, the tendency for stock prices to decline before a recession officially occurs and to rise before it officially ends (a “leading indicator” effect), Vanguard said.  

For more stories like this, sign up for the PLANADVISERdash daily newsletter.

The research found the returns for stocks, bonds, and the 50%/50% portfolio have varied greatly in specific recessions. Balanced portfolios have provided positive returns in a surprising number of recessionary periods, in part because equities often have done better during recessions than conventional wisdom would suggest. In fact, the time-varying and somewhat uneven relative performance of stocks and bonds has been observed in periods of expansion, too.  

Vanguard said it interprets its results as consistent with the notion that an investment program focused on a diversified, long-term, strategic asset allocation is appropriate regardless of the timing of recessions.

«