Uncertainty Drives Preference for Income Guarantees

Many retirement savers are focused on income guarantees and establishing a level of protection against market volatility, according to the Allianz Life 2014 Market Perceptions Study.

Rising markets for much of 2014 were largely offset by significant downturns in August and October, tempering Americans’ attitudes about risk and investing aggressively for retirement, the study finds. The vast majority of investors polled for the study said they prefer financial products with guarantees (78%) over products with higher growth potential but the possibility of losing value (22%).

This opinion aligns with Americans’ current attitude about retirement strategies, Allianz says, as four in five respondents (80%) agreed that it’s important to have a guaranteed source of income in retirement, well ahead of those who indicated they are comfortable with current market conditions and are ready to invest now (28%). When asked what factors would prevent the investing of “extra cash,” four in 10 respondents pointed to “fear of market uncertainty,” ahead of “lack of reliable financial advice/guidance” (26%) and “today’s low interest rates” (22%).

“Hands down, Americans are saying their retirement savings strategy must include products and choices that offer guarantees, even though equity markets have performed well this year,” observes Katie Libbe, vice president of consumer insights at Allianz, an annuity provider. “It appears that the recent threat of volatility is enough to keep many consumers away, particularly those who are focused on saving for retirement.”

Notably, Allianz found 39% of American investors would put extra cash into a product that offers a balance of potential growth and some level of income protection. Another 19% said they would put extra cash into a product with modest potential growth (2% to 3% growth) and no potential loss—the same number that would put extra cash into a savings account earning little or no interest.

Despite warnings against trying to time the markets, 12% would hold their extra cash and “wait for the market to correct” before purchasing a financial product for their retirement. Finally, 11% would put extra cash into a product with high growth potential and no protection from loss, the study finds.

When asked about the most important action to take in the longer-term approach to retirement, more than four in 10 (41%) cited putting some of the money into a financial product that provides a guaranteed stream of income in retirement. According to Allianz, only 12% of respondents said the best strategy is to put some of their money into equities to build up retirement assets.

Given the choice between two financial products—one offering an 8% return with the possibility of losing value and one with a 4% return but guaranteed not to lose value—a strong majority (78%) of respondents chose the guaranteed product, Allianz says.

On the question of investors’ biggest concerns surrounding retirement, not being able to cover basic living expenses (34%) and outliving sources of income (20%) were the top responses. Other issues that respondents noted they fear in retirement include “paying for health care costs” (17%), “seeing retirement savings drop significantly in value” (12%), “keeping up with inflation” (12%) and “managing any tax increases” (4%).

The Allianz Life 2014 Market Perceptions Study was conducted by Ipsos via its online iSay/Ampario Panel from September 12 to 16, 2014, with 791 panel respondents ages 18 and older who identified as “not retired,” and was commissioned by Allianz Life Insurance Company of North America.