As Pandemic and Systemic Pressures Impact Retirement Savings, Advisors and Financial Professionals Favor Key Provision of SECURE Act: Nearly Two-Thirds Likely to Adopt In-Plan Guarantees
Millennials and Gen X Investors Strongly Agree on the Need for SECURE Act’s In-Plan Guarantees According to Nationwide’s Sixth Annual Advisor Authority Study
Columbus, OH - As the pandemic’s impact collides with powerful systemic pressures putting more responsibility on individuals to save for retirement, Americans’ plans for retirement have been hit by the perfect storm. Roughly-three fourths of investors (72%) say the COVID-19 pandemic has had a negative impact on how long they are able to live off their current retirement savings. Nearly two-thirds of investors (63%) expect to require 20 to 30 years of income in retirement—but less than half (47%) think they can live off their savings for that long.
These are among the latest findings revealed in Nationwide’s sixth annual Advisor Authority study, powered by the Nationwide Retirement Institute, reflecting the responses of more than 1,800 advisors, financial professionals and individual investors with investable assets of $100,000 or more.
“Recent market turbulence and changing regulations have put a new lens on retirement needs. The pandemic is driving greater volatility, confidence in Social Security is eroding, access to defined benefits are on the decline and systemic shifts continue placing greater responsibility—and greater pressure—on individuals to fund their own retirement,” said Eric Stevenson, President of Nationwide Retirement Plans. “As defined contribution plans have become a predominant vehicle for retirement savings in the workplace, the SECURE Act will now help more plans to adopt in-plan guarantees, a crucial new solution with the potential to provide what Americans are looking for in the post-COVID world: A guarantee.”
The Setting Every Community Up for Retirement Enhancement (SECURE) Act removes existing barriers for plans adopting in-plan guarantees, to protect retirement savings and provide guaranteed income for life within defined contribution plans, including 401(k)s and 403(b)s, as well as Governmental 457(b) plans. Passed with bi-partisan support in late 2019, the SECURE Act is considered the most comprehensive retirement legislation since the Pension Protection Act of 2006, providing more opportunities for participants to access retirement planning solutions that can help them not only reach retirement, but also live in it.
Financial Professionals Predict Strong Adoption for In-Plan Guarantees
Following the passage of the SECURE Act, nearly two-thirds of advisors and financial professionals (64%) say they are likely to adopt in-plan guarantees to provide guaranteed income within clients’ defined contribution plans. More than one-third (39%) of advisors and financial professionals currently use in-plan guarantees to protect clients against outliving savings.
When asked for which net worth segment of clients they are most likely to recommend in-plan guarantees, advisors and financial professionals say Emerging High Net Worth clients ($500,000 to less than $1 million in investable assets). Likewise, Emerging High Net Worth investors are the net worth segment most likely to incorporate in-plan guarantees within their defined contribution plans. It is also important to note that Millennial and Gen X investors are the generations most likely to adopt in-plan guarantees, as detailed below.
In-plan guarantees are also proving popular with employers. Following the passage of the SECURE Act, 60% of employers also say they would consider offering employees lifetime income solutions according to a 2019 survey by Willis Tower Watson.
Millennials and Gen X also Favor In-Plan Guarantees
The need for guaranteed income among investors who are ages 55 and younger is clear, as they face greater responsibility to save for their retirement than preceding generations, and they are likely to spend more years in retirement. The SECURE Act will not only give Millennials and Gen X investors the opportunity to potentially save more, by taking advantage of tax-deferred and tax-free accumulation over time, it also gives them the opportunity to generate a protected stream of lifetime income in retirement by leveraging in-plan guarantees.
While potential adoption is lower among the overall population of investors, with only 43% likely to incorporate in-plan guarantees within their defined contribution plans and nearly one quarter (22%) saying they do not know, investors who are ages 55 and younger are far more likely to adopt in-plan guarantees as a result of the SECURE Act. In fact, two-thirds of both Millennial investors (65%) and Gen X investors (66%) are likely to incorporate in-plan guarantees within their defined contribution plans, compared to only 28% of Boomer investors. While 24% of investors overall currently use in-plan guarantees within their defined contribution plans, more Millennial investors (30%) and Gen X investors (37%) use in-plan guarantees than Boomer investors (17%).
SECURE Act Drives Use of Annuities
By raising awareness about the importance of guaranteed income, the SECURE Act is also driving greater usage of annuities. As a result of the SECURE Act, 70% of advisors and financial professionals also say they will increase their usage of annuities. Likewise, investors ages 55 and younger are more likely than the overall population of investors to say they will increase their usage of annuities as a result of the SECURE Act.
While only 42% of the overall population of investors plan to increase their use of annuities due to the SECURE Act, adoption among younger investors is far greater. Nearly three-fourths of Millennial investors (70%) and nearly two-thirds of Gen X investors (63%) are likely to increase their use of annuities due to the SECURE Act, compared to only one-quarter of Boomer investors (25%).
“The fallout from COVID-19 continues to challenge investors and threaten the security of their retirement, driving greater demand for guarantees both inside and outside of their qualified plans,” said Craig Hawley, head of Nationwide’s Annuity Distribution. “In fact, months after the coronavirus was declared a pandemic, 85% of investors continue to say they can do all the right things to manage their finances, yet still be blindsided by outside events.”
More than three-fourths of advisors and financial professionals (79%) are likely to choose an annuity as part of a holistic financial plan to protect clients against outliving their savings, according to Advisor Authority. In addition, 84% of advisors and financial professionals say annuities with income guarantees are important for supporting a sustainable withdrawal rate that will generate income in retirement and protect against outliving savings.
Likewise, more than half of investors (54%) are likely to choose an annuity as part of their holistic plan to protect against outliving their savings, including 71% of Millennial investors and 69% of Gen X investors vs 44% of Boomer investors. Notably, more than half of investors (53%) say they would feel more secure if a portion of their portfolio was invested in an annuity to protect against outliving their savings, including 73% of Millennial investors and 65% of Gen X investors vs just 42% of Boomer investors.
Protecting Retirement is a Top Priority
More than 9 in 10 advisors and financial professionals (94%) have a strategy in place to protect their clients against outliving their savings, according to Advisor Authority. Social Security (59%), dividend yielding stocks (55%) and variable annuities with living benefit riders (55%) are their top three solutions. In addition, the vast majority of advisors and financial professionals (83%) have a strategy in place to generate guaranteed income in retirement for their clients.
In comparison, roughly 8 in 10 investors (81%) have a strategy in place to protect themselves against outliving their savings. Investors are somewhat more likely than financial professionals to say they rely on Social Security (68%), and among investor’s top three most common solutions, they also cite defined benefit plan/pension (44%) and dividend yielding stocks (39%). Likewise, 80% of investors also have a strategy to generate guaranteed income.
“To confront today’s complex dynamics, planning and professional advice are more important than ever,” said Craig Hawley. “More than 9 in 10 investors say that having a plan for their investments helps them feel in control, even if they can’t plan for everything, and their number-one reason for working with an advisor is to feel more confident in their financial future.”
For more insights on the importance of the SECURE Act and in-plan guarantees, advisors and financial professionals can also view the latest Advisor Authority infographic:
Nationwide’s sixth annual Advisor Authority study powered by the Nationwide Retirement Institute explores critical issues confronting advisors, financial professionals and individual investors—and the innovative techniques that they need to succeed in today’s complex market. This is the first in a series of ongoing releases from the sixth annual study.
About Advisor Authority: Methodology
The sixth annual Advisory Authority Survey was conducted online within the United States by The Harris Poll on behalf of Nationwide from May 27 – June 25, 2020 among 1,768 financial advisors and 817 investors, ages 18+. Among the 1,768 financial advisors, there were 758 RIAs, 642 Registered Reps, 500 Wirehouse and 165 other advisors. Among the 817 investors, there were 131 Millennials (Ages 18 – 39), 161 Generation X (Ages 40 – 55), 433 Boomers (Ages 56 – 74) and 92 Matures (Ages 75+). Investors are weighted where necessary by age by gender, race/ethnicity, region, education, income, marital status, household size, investable assets and propensity to be online to bring them in line with their actual proportions in the population. Respondents for this survey were selected from among those who have agreed to participate in Harris Poll surveys. Because the sample is based on those who were invited to participate in the Harris Poll online research panel, no estimates of theoretical sampling error can be calculated.
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About The Harris Poll
The Harris Poll is one of the longest running surveys in the U.S. tracking public opinion, motivations and social sentiment since 1963 that is now part of Harris Insights & Analytics, a global consulting and market research firm that delivers social intelligence for transformational times. We work with clients in three primary areas; building twenty-first-century corporate reputation, crafting brand strategy and performance tracking, and earning organic media through public relations research. Our mission is to provide insights and advisory to help leaders make the best decisions possible. To learn more, please visit www.theharrispoll.com.