Annuities Can Help Wary Investors Stay in the Game

A Prudential survey of near and recent retirees found guaranteed products will help persuade wary investors to stay in the stock market, even during times of volatility.  

The Prudential survey, called “2006 to 2011: Changing Attitudes About Retirement Income,” found individual investors are increasingly wary of investing in the stock market due to continuous volatility. The most cautious segment of the population is the “Retirement Red Zone,” those who are just a few years from retirement or have recently retired; this group is especially drawn to financial products with guarantees.

Almost nine out of 10 (84%) survey respondents indicated if they had a retirement investment product with guaranteed income, they would likely stay in the stock market even if they were to experience short-term losses, and 76% said they would stay invested for the longer-term horizon. Both of these measures are higher than in 2006 by 10 and four percentage points, respectively.

“When investors take risk off the table by getting out of the stock market, they potentially increase the risk that they will not be able to generate the returns they need to achieve their retirement goals,” said Stephen Pelletier, President of Prudential Annuities. “While annuities and other products that guarantee a stream of income can help meet Americans’ retirement income needs, this research demonstrates that such products  are also more likely to keep people invested in the stock market, with the potential for higher returns, protection from market declines, and benefits to the economy overall.”       

Prudential found over the last five years Americans have become more worried about retirement investment strategies.  Almost six in 10 are concerned about how much income they will need in retirement; 56% question whether their investment strategy is right for their retirement needs (compared to 11% in 2006); and more than two-thirds (68%) say they are more cautious than ever before.  Nearly three-quarters (73%) are concerned about a significant decline in the stock market immediately before or after their retirement.

Almost half (47%) hesitate to invest more in the market despite future growth opportunities. Reflecting a more cautious mindset, 60% feel investing too aggressively is the greater risk to their retirement security compared to investing too conservatively, an increase of 9% compared to 2006.  More than eight in 10 (84%) are concerned about inflation eroding the value of their retirement savings.

“The growth we have seen in the annuities market over the last two years reflects the increasing recognition of the value of guaranteed income products as part of an overall retirement planning portfolio,” added Pelletier. “The financial industry has been responding to increased demand for guarantees with innovative products and increased capacity to meet investors’ needs.”      

The survey shows increased awareness of guaranteed retirement income products and strong interest in them. Three quarters of investors find these products appealing and more than eight in 10 see them as a valuable addition to their portfolio.   

For financial advisers, the survey underscores the value investors place on getting good advice; however, it also highlights a five year trend of investors becoming more self-reliant. While 48% said they want guidance on the financial issues they need to be thinking about and the solutions that may be best for their situation, the percentage of do-it-yourself investors over the past two years has grown from 23% in 2009, to 32% in 2011.  Today, more than three-quarters of investors report they hold themselves more accountable for investment decisions (78%).

The study polled 1,001 mass-affluent Americans in an online survey from May 4 – 12, 2011. Prudential targeted respondents considered to be “Retirement Red Zone Investors.” The participants were primary or joint decision-maker for household financial decisions, between the ages of 45-75 with household income and investable assets of at least $100,000 ($50,000 income if retired) and retirement savings of at least $100,000.