ANNUITY
How Annuities Can Help Women Overcome Retirement Anxiety How Annuities Improve Retirement Portfolios
By Jim Poolman
Research shows that in most situations, income annuities can better meet client goals in retirement than an investments-only approach can. Retirees who had guaranteed income through an annuity were more likely to feel confident and accept more market volatility with their other assets.
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reparing for retirement is a lifelong process, no matter your background, income level or geographic location. However, widespread evidence demonstrates that women face challenges different from those men face when preparing for retirement. For example, according to the 2019 “Women, Money, and Power Study” commissioned by Allianz Life, women have experienced a steady downward trajectory on a number of key financial points in recent years. First, fewer women report having increased their earning power in 2019 (42%, compared with 57% in 2013). Second, only a quarter of women in the study say they currently work with a financial professional, which is down from 30% in 2016. These concerning trends are compounded by the fact that women tend to live longer, which leads to not only increased living expenses throughout retirement but also higher health care expenditure. This puts women at an even higher risk of outliving their savings. Finally, even though ultimately eight out of 10 women will be solely responsible for their financial well-being at some point — as a result of divorce, widowhood or never marrying — most women prefer to let their spouse handle long-term financial planning, according to a 2018 UBS survey. But this can lead to financial surprises once women are on their own. Underscoring this point, the survey also found that 59% of divorced or widowed women say they wish they had been more involved in long-term financial decisions during their marriage. Together, these points emphasize the 34
Researchers looked at combination strategies using both annuities and investments compared with traditional investment-only portfolios and found the following:
» Adding an income
annuity to a retirement portfolio allows a retiree to get the same or higher income with a lower risk of outliving savings than an investments-only approach.
» Retirees with income annuities can spend at a level that investments alone would be unable to match without significant risk of running out of money before age 95.
importance of a strong financial plan to help women avoid the unique financial challenges they’ll face during retirement. Everyone’s ideal retirement looks different, and thus the path to getting there will be unique to each person. Regardless, the following best practices may be helpful when working with female clients in preparing them for life in retirement.
Encourage clients to get and stay engaged.
As mentioned earlier, a majority of divorced or widowed women say they wish they’d been more involved in household financial decisions during their marriage. In recent years, the divorce rate for couples age 50 and older has been increasing, and a late-in-life divorce has much greater financial implications compared with a divorce that occurs before age 35. In the late-in-life divorce, retirement accounts are cut in half. This can set both spouses back financially, but women usually have a harder time recovering, especially if they left the workforce during their marriage to raise children or pursue other priorities.
InsuranceNewsNet Magazine » March 2020
» Using both annuities and investments can enhance the value of assets for heirs over
the long term.
No one starts a marriage anticipating a divorce, but these statistics underscore the importance of women staying engaged in financial decisions throughout their marriage. Whether or not they have a long-term partner, it is important that women take ownership of their own financial future with eyes wide open. BOTTOM LINE: Financial professionals working with female clients who are in significant, long-term relationships encourage regular meetings between partners. That way, the couple can talk through their financial goals. This not only ensures the partners are aligned, but also wards off any unnecessary surprises should life take an unexpected turn.
Explore lifetime income options.
Today, with increasing life expectancies, retirement can realistically last for decades. Longer life expectancies, combined with more years spent in retirement, increase the risk of outliving savings. Given that women are more likely to outlive their male partners, products that offer guaranteed lifetime income
SOURCE: Principal Financial Group
Lifetime income products can give women the financial confidence to face their unique retirement challenges.