New Research from Principal Shows Annuities Improve Retirement Outcomes
April 22 2019 - 7:00AM
Business Wire
10,000 simulations highlight impact of
guaranteed income for retirees
The simulations have been run and the numbers have been
crunched: annuities help improve retirement outcomes compared to
investments alone. This is according to new research commissioned
by Principal Financial Group® and conducted by Michael Finke,
Ph.D., CFP®, and Wade Pfau, Ph.D., CFP®.
The research looked at how retirees can use guaranteed income
annuities to not only improve financial outcomes, but also increase
confidence and reduce stress in retirement.
“Workers show strong interest in guaranteed income1, but
one-third of individuals report lower interest in the same
guaranteed lifetime income product when it is labeled as an
annuity2,” said Sri Reddy, senior vice president of retirement and
income solutions at Principal®. “It’s time to demystify the value
of annuities and acknowledge their role as part of a balanced
retirement plan.”
How annuities impact retirement portfolios
Retirees who had guaranteed income through an annuity were more
likely to feel confident and accept more market volatility with
their other assets.
Annuities are one of the most efficient ways to generate
guaranteed income. This is demonstrated through a series of three
case studies which looked at combination strategies using both
annuities and investments compared to traditional investments-only
portfolios. The simulations found:
- Adding an income annuity to a
retirement portfolio allows a retiree to get the same or higher
income with lower risk of outliving savings than an
investments-only approach.
- Income annuities allow a retiree to
spend at a level that investments alone would be unable to match
without significant risk of running out of money before age
95.
- Using both annuities and investments
can enhance the value of assets for heirs over the long term.
Ultimately, the research showed income annuities can help to
better meet client goals in retirement than an investments-only
approach in most situations.
“Annuities are essentially a pension provided by a private
company. If you’re the type of retiree who wishes they had a
pension, you can buy one through an income annuity that will
provide a regular income as long as you live,” said Finke. “If the
reason you saved for retirement was to provide a secure lifestyle,
there’s no more efficient way to create lifetime income that
through an annuity.”
The role of confidence
In addition to the quantitative findings, the researchers
interviewed income annuity owners to provide insight into the
emotional impact of guaranteed income. They found that annuity
owners have a greater level of confidence, feel the freedom to
spend and invest and feel more certain in leaving a legacy.
Using an income annuity supports higher success rates in
retirement. Retirement outcomes when the combination approach is
used are very attractive when compared to investments-only, both in
terms of supporting a spending goal and a greater legacy value of
remaining assets.
On an emotional level, retirees are more confident when there's
certainty to their monthly income. The certainty an income annuity
provides increases confidence and reduces stress in retirement.
“If the hard numbers and math don’t convince you, then take it
right from the source. Retirees who had purchased an annuity are
more confident than those without one,” added Reddy. “They worry
less about the market, feel more comfortable spending on things
they enjoy and feel they have a better life with less worry of
outliving their savings. The head and the heart come together here
to show that annuities really do help people have enough, save
enough and protect enough for their future.”
About Principal®
Principal helps people and companies around the world build,
protect and advance their financial well-being through retirement,
insurance and asset management solutions that fit their lives. Our
employees are passionate about helping clients of all income and
portfolio sizes achieve their goals – offering innovative ideas,
investment expertise and real-life solutions to make financial
progress possible. To find out more, visit us at principal.com.
Annuities are issued by Principal Life Insurance Co. Securities
offered through Principal Securities, Inc. Member SIPC. Principal
Life and Principal Securities are members of the Principal
Financial Group, Des Moines, IA.
1 EBRI 2018 Retirement Confidence Survey2 2018 Guaranteed
Lifetime Income Study, Greenwald & Associates
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190422005038/en/
Media Contact: Hillary Carlson, 515.878.1460,
carlson.hillary@principal.com
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