PANC 2013: Retirement Income

As the American demographic is approaching retirement—many without adequate savings—the discussion of the role of retirement income products has ramped up.

Kevin McGarry, director of the Nationwide Institute at Nationwide Financial, told attendees of the 2013 PLANADVISER National Conference that its research shows only 22% of Americans feel prepared for retirement, but retirement income solutions can help bring up this number.

Glenn Dial, head of U.S. Retirement at Allianz Global Distributors, added that guaranteed products, such as income solutions or annuities, are the only way to insure against longevity risk. He pointed out that the marketplace built an infrastructure before the retirement industry started to consider the use of such products for retirement plan participants, but both in-plan and out-of-plan solutions have issues. For out-of-plan solutions, where participants purchase a guaranteed product at the time of retirement, the biggest risk is interest rate or transition risk—whether the value of the purchase will equal the value of assets being used for the purchase. In-plan solutions still present portability and cost issues.

Timothy Walsh, managing director for the Institutional Product business at TIAA-CREF, said portable solutions are emerging as providers recognize the need for plan-level portability, but if participants are able to move the product from plan to plan, yield will suffer. When considering an in-plan solution, plan sponsors should ask if it is better to give up portability to maximize participants’ yields.

McGarry noted that retirement income strategies for participants not only include the use of variable or immediate annuities, but can include traditional systematic withdrawals of their accounts as well as life insurance and long-term care insurance.

According to Walsh, no one solution fits everyone’s needs. Individuals have unique financial scenarios when they retire, so aside from retirement income products, participants need one-on-one advice. McGarry agreed that participants need to have a full retirement income plan in place as they approach retirement; it may include retirement income products, but it could be a combination of strategies.