Insurance Executives on the Evolving Retirement Landscape

During a recent interview with PLANADVISER, Kelly LaVigne, vice president of consumer insights at Allianz Life, highlighted some key findings identified by his firm’s newly published 2022 Retirement Risk Readiness Study.

As the United States passes the two-year mark of the COVID-19 pandemic, LaVigne says, it is becoming increasingly clear that there is a significant gap in the financial experiences of younger Americans and their retired counterparts. In fact, while nearly two-thirds of non-retirees say they fear running out of money even more than they fear death, less than half of retired respondents say the same.

“Americans who have yet to retire and are still balancing careers, family and saving are feeling more worried about their financial future than they did at this point last year, and they are significantly less confident than current retirees,” LaVigne warns. “This is particularly true for people who are 10 or more years from retirement, who we describe as pre-retirees.”

Fewer than seven in 10 (68%) pre-retirees say they feel confident in being able to support their future financial goals. This is down from 2021, when 75% of pre-retirees said they had such confidence. Meanwhile, 89% of retired respondents now say they feel confident about funding their future financial goals, demonstrating the confidence gap noted by LaVigne.

The confidence gap is even wider when one drills down to more specific goals, LaVigne points out. For example, when it comes to having enough money to do all the things they want in retirement, just 28% of current retirees say they are worried about this, compared with 64% of pre-retirees. A very similar confidence gap exists when it comes to worries about the cost of living increasing and limiting people’s ability to afford necessities. At the same time, retirees are more relaxed than they were last year about various retirement risks, including market downturns and health care costs.

“While it is encouraging that many retired Americans were able to weather the financial storm caused by the pandemic, it is equally concerning that so many pre-retirees did not escape unscathed,” LaVigne says. “The reality is, financial aftershocks from the pandemic are still ongoing, so both groups need to make sure they are taking the necessary steps to mitigate risks to their retirement security.”

LaVigne says these confidence statistics underscore the importance of the potential passage of the Securing a Strong Retirement Act this year. The legislation seeks to expand access to high-quality workplace retirement plans and protected lifetime income products. If passed by the Senate in the same form already passed nearly unanimously by the House, the bill would significantly expand automatic enrollment by requiring new 401(k), 403(b) and SIMPLE plans to automatically enroll participants upon becoming eligible, with the ability for employees to opt out of coverage.

The Securing a Strong Retirement Act also enhances the retirement plan start-up credit, making it easier for small businesses to sponsor a retirement plan. The legislation further increases the required minimum distribution age to 75 and indexes the catch-up contribution limit for individual retirement accounts. The numerous lawmakers and industry professionals who support the bill say these changes will make it easier for American families to prepare—with well-founded confidence—for a financially secure retirement.

“I see the study and the legislation as being very closely related,” LaVigne says. “The concerns we see voiced in our research are directly reflected in many of the provisions in the proposed bill. From our perspective at Allianz Life, it is really interesting and positive to see this responsive piece of legislation enjoy so much bipartisan support.”

Citing the concerns younger respondents shared about their amount of debt, LaVigne says he is excited to see other features of the legislation package that would allow employers to match their workers’ loan repayments with retirement account contributions.

“It would be so powerful if the employer was able to give a matching contribution to their people who are paying down potentially very large student loans,” he says. “Paying off debt is, as we all know, a really good thing from a retirement readiness and confidence perspective.”

Regardless of whether they are retired or still in the workforce, LaVigne says, all Americans are challenged by inflation right now and need to develop strategies that ensure their income keeps up with rising costs.

“While changes to spending habits can help in the short term, it is important that people take measured steps, such as adding a source of guaranteed income that can help to protect their finances without sacrificing retirement security,” he suggests.

Paul Chong, head of retirement and investments at CUNA Mutual Group, agrees that the need for legislative updates is clear, especially when it comes to getting more Americans enrolled in workplace retirement savings plans and ensuring they can access lifetime income solutions in their retirement plan accounts.

“One thing that has become clear is that, during periods of market volatility, as we are currently experiencing, annuity products can shine brightly,” Chong suggests. “We all know that annuity solutions help with downside protection for people’s nest eggs. Frankly, it is harder to talk about the use and goals of annuities when the markets are going up and up. The significant volatility we are now experiencing has helped to demonstrate why annuities are important and potentially very useful.”

From Chong’s point of view, it appears the overall level of awareness regarding annuities and related products and services has been increasing substantially, especially among the adviser and brokerage communities. At the same time, insurers are collaborating with advisers and brokers to develop new, innovative products that meet the moment.

“It has been really exciting to work on new products that address the concerns of advisers, brokers and their clients,” Chong says. “As an example, there is a lot of development work going on in the registered index-linked annuities space. The goal with these products is to provide upside participation and downside protection against market drops. Both of these features are prized by retirement advisers and their clients.”

Data from the LIMRA Secure Retirement Institute shows that, in 2021, sales of this annuity type set a new record, benefitting from the current economic conditions and expanded competition from new carriers entering the market. Specifically, registered index-linked annuity sales broke records in both the fourth quarter of 2021 and for the year. Fourth-quarter RILA sales were $10.6 billion, 26% higher than the prior year. In 2021, RILA sales were $39 billion, 62% higher than the prior year.

“The complexity of these new products is meaningful and challenging on the back end, but our goal is to provide simple and easy-to-use products, so that advisers and brokers can easily explain how these products can be utilized by their clients,” Chong says. “The nuts and bolts of sophisticated insurance products are always going to be complex, but a huge goal of ours is to be able to make the solutions easy to use.”

When it comes to the regulatory and legislative picture, Chong says, keeping up with change is simply part of the job.

“Generally speaking, the adviser and insurance industries are both very good at responding to the constant rule updates and making sure they are on top of any legislative or regulatory changes,” Chong says. “Anyone who has spent time in this space will tell you that there is always some industry update that is going on. Frankly, it is a normal part of the business that we and our competition are well prepared to deal with.”