Data & Research April 13, 2016

Financial Stress on the Rise

An increase in health care costs over the past two years is directly attributing to decreased retirement savings, a survey finds.
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Financial wellness has declined from 2013 to 2015 and as a result, financial stress is on the rise. The latest Bank of America Merrill Lynch Workplace Benefits Report shows that six in 10 employees are worried about their financial futures, up from 50% in 2013.

Nearly seven in 10 (69%) have experienced a rise in health care costs over the past two years, directly attributing to decreased retirement savings. However, this cost also appears to be driving activity in other investment vehicles with nearly half (46%) of employees starting or increasing contributions to health savings accounts (HSAs) and flexible spending accounts (FSAs). In addition to rising health care costs, many other components of financial wellness have declined in a couple years. In 2013, for example, 77% of respondents said they “strongly agreed” that they were able to pay their monthly mortgage or rent. In 2015, that number went down to 59%. In 2015, 57% of respondents strongly agreed that they always have money to spend on basic necessities, compared with 40% in 2015.

Interestingly, the only component for which responses improved was, “I am saving enough for my retirement.” Nineteen percent strongly agreed with this statement, compared with 15% in 2013. “There’s sort of this false sense of security and optimism about having enough savings for retirement. But overall, they still feel uneasy about their [holistic] financial wellness. So there’s a disconnect,” Lorna Sabbia, head of Retirement and Personal Wealth Solutions for Bank of America Merrill Lynch, tells PLANADVISER.

Even if their actual financial conditions may not have worsened, employees seem to feel less certain about their finances now than in 2013, which has created high levels of financial stress.

NEXT: Employers Can Help With Financial Stress

Employers can help workers combat this stress through financial education. While the vast majority of employees (83%) say their workplace financial benefit plans are critical to financial security, more than half (59%) admit they need help understanding how these benefits can work for them, and 55% say they need help managing their finances.

Plan sponsors and advisers can work together to craft educational programs and resources that speak to these needs. And of equal importance, they can create a culture where employees are comfortable saying they need help with financial planning, Sabbia says. “How do you make them feel comfortable? Allow that to be part of the culture and dialogue,” she adds.

According to the survey, employees are seeking a combination of personal and digital assistance. A near-identical percentage of employees say they want online tools (54%) as those who want access to a one-on-one relationship with a financial professional (52%).

“Many would jump to conclusions to say Millennials want to do it themselves [when it comes to financial planning]. But that’s not accurate,” Sabbia adds. “People are saying they want education from their employers.”

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The full report is available here. 

Data & Research April 12, 2016

Advisers, Retirement Plan Providers Trusted Sources for Annuity Info

Retirees prefer guaranteed income over spending down assets, a survey found.
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A new survey finds that retirees continue to rely extensively on sources of income that are guaranteed for life, instead of spending down non-guaranteed assets.

Half of retirees expect to grow their assets over the next decade, while another three in 10 expect to keep their non-guaranteed assets at a constant level, according to the 2nd Annual Guaranteed Lifetime Income Study released by Greenwald & Associates and CANNEX, an independent provider of data and information to the financial services industry.

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Nearly half of study respondents spend at least $3,500 a month from guaranteed sources of income, such as Social Security, pensions and annuities, but nearly as many—41%—do not spend any money at all from their non-guaranteed assets.

“We found that most retirees feel it’s important to preserve their asset levels if they can, and many cut spending to do it,” says study author Mathew Greenwald, president and CEO of Greenwald & Associates.

Another key finding: women have greater interest in purchasing annuities that offer guaranteed lifetime income (GLI). Nearly seven in 10 women say that purchasing an annuity is an appealing strategy to generate retirement income; only 57% of men say the same. However, women are more likely to worry about the company offering the annuity and to feel like they don’t know enough about the products.

NEXT: Most would trust adviser, retirement plan provider for annuity info

While some annuities do offer GLI, many pre-retirees and retirees are not familiar with these financial products. The survey found that understanding of financial products that guarantee lifetime income is low. For example, only 15% know that annual payments from immediate annuities are higher than payments from the highest rated bonds. Also, only 32% know that immediate annuities generally cost less for those who purchase them later in life.

In addition, many consumers avoid annuities for fear of not having access to their money should they need it. Ninety percent of those without annuities that offer GLI identify “access to money” as a reason for not owning one. The common desire to preserve assets is clearly also a desire to preserve access to assets.  

“This survey indicates that many people think their asset level is quite important, but most do not define a guaranteed stream of income for life as an asset when they calculate how much money they have,” said Gary Baker, president of CANNEX USA. “This type of thinking deters many from supplementing their Social Security income with annuity income for life, which could help optimize their portfolios.” 

The most trusted source of information about annuities is a financial adviser: 83% of survey respondents said they would trust this source. Nearly as many, 78%, would trust a retirement plan provider to provide information about annuities. Financial institutions are trusted slightly less, but two-thirds would trust this source. Online financial resources rank next to the bottom of this list, with only 34% of consumers trusting this source.

The appeal of annuities is much higher when presented as part of a broader financial strategy. When given a hypothetical scenario and a set of potential investment strategies, more than 60% of survey respondents thought the options that included an annuity were good strategies, while less than half said the same about a strategy that put money only in mutual funds.

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