Retirees Consider Reallocating Assets

Almost half (47%) of those considering reallocation say they are not sure how they will do this, according to a press release from insurer MetLife, which sells annuity products.

Only 17% of those who have experienced losses would rebalance their current portfolio to get more of a return.

One-fifth are exploring guaranteed income products such as fixed income annuities, 17% are moving or planning to move more assets to bank CDs and/or money market funds, and 14% plan to move more assets to fixed-income strategies, the press release said.

The study found more than one-third (37%) of retirees keep the majority of their assets in liquid accounts that provide ready access to assets such as CDs, savings accounts and money market funds.

But MetLife said they may be paying a premium for keeping assets in these accounts, especially if they have no present intention of withdrawing the money and are passing up potentially higher guaranteed returns elsewhere. Almost half (49%) of those with more than half of their funds in liquid accounts said they suffered market losses.

Most (83%) retirees say the interest income from their liquid holdings does not serve as the primary—or even major—source of funding for their basic needs, and 96% say “achieving consistent returns of 6% or more” is at least a somewhat important financial consideration or goal.

Passing Up Liquidity

When asked if they would be willing to give up access to funds currently in an interest-earning account such as a bank CD or money market account if they could earn a significantly higher guaranteed return, only 12% of retirees surveyed by MetLife said yes, while almost two-thirds of respondents were undecided. Of those who did not say yes, only 24% changed their minds when presented with a guaranteed return of 6% to 8%, yet 49% say that income preservation/guarantees are important when selecting savings and income products.

MetLife concluded that a lack of knowledge and understanding about the products they currently own is a factor in retirees’ indecision. Twenty-one percent of respondents say they do not know the interest rates for any of their interest-rate-sensitive accounts, and 29% only know the interest rates for some of these products. Among those who do know the interest rates, 63% say their assets are generating less than 4% per year.

“The goal for retirees right now is to achieve an optimal mix of investments, liquidity and protection products. For most retirees, this means giving up some—but not all—of that liquidity in favor of products such as income annuities that may provide more income with guarantees,” said Julia Lennox, vice president in the Retirement and Wealth Management Group at MetLife, in the release.

Harris Interactive fielded the study on behalf of MetLife from October 1-10 2008, interviewing a nationwide sample of 1,027 retired U.S. adults aged 63 years and older who own at least one of six savings/income products: 401(k), Mutual Funds outside of a 401(k) or IRA, Bank CDs and/or Money Market Account, Annuities, Savings Account, Individual Stocks and Bonds.