Leading Retirement Scholars and Experts Explore What’s Next in Protected Income for Retirement
Americans need to change their focus from simply accumulating savings in employer-sponsored retirement plans to how their plan should translate to steady income in retirement, said David Pratt, the Jay and Ruth Caplan Distinguished Professor of Law at Albany Law School, during the Alliance for Lifetime Income’s 2020 Retirement Income Institute (RII) Dialogue webcast on Sept. 16.
“Until relatively recently, defined-contribution plan participants and advisors have focused on accumulations, rather than how to translate those accumulations into lifetime income,” Pratt said at the virtual event. With traditional company pensions disappearing, a push to educate both employers and employees on the importance of protected lifetime income in retirement would help employees better understand how much regular income they could expect in retirement based on their current fund balance.
People underestimate the possibility that they could outlive their resources, that is why it is important that people really understand that an annuity is an insurance product, not an investment product. You buy it because you want to avoid risk, and that risk needs to be emphasized more.
The SECURE Act has made it easier for employers to add annuities – an important source of protected income – to their employer retirement plans, but additional regulatory and legal barriers remain, Pratt said. To ease the adoption of annuities in company retirement plans, Pratt suggested focusing on solutions such as:
- Making rollovers and consolidation of assets easier.
- Allowing more flexibility for qualified longevity annuity contracts, aka deferred annuities, in retirement plans.
- Educating the Department of Labor on the many risks for people in retirement and the importance of protected lifetime income.
The RII Dialogue was the first event in a unique series bringing together retirement scholars and experts, financial professionals and industry executives to discuss potential solutions to the retirement income crisis. During the invitation-only RII-sponsored session nearly 170 attendees learned about the latest research and insights from leading retirement scholars and academics, and participated in highly engaging discussions with the various RII Fellows, member company executives and industry thought-leaders.
Among other highlights of the day:
- Anthony Webb, research director at the Schwartz Center for Economic Policy Analysis at the New School, said research on annuities needs to reflect that individuals are making retirement decisions based on the entire household, not just themselves. “Annuities are a highly effective means of preserving assets for [a] surviving spouse,” he said. Financial planning also needs to be more holistic by factoring in not only annuities but also the costs of long-term care and other medical services. People planning for retirement need to make purchasing decisions on annuities and long-term care at the same time.
- George A. “Sandy” Mackenzie, former editor of the Journal of Retirement, asserted that individuals planning for retirement need to better understand the importance of insuring against longevity risk with annuities. “People underestimate the possibility that they could outlive their resources,” he said. “That is why it is important that people really understand that an annuity is an insurance product, not an investment product. You buy it because you want to avoid risk, and that risk needs to be emphasized more.”
- Joseph F. Coughlin, founder and director of the MIT AgeLab, presented studies showing that older millennials and Generation Xers are most concerned about the impact of COVID-19 on long-term financial goals. Roughly during their 40s, this age group is in the prime engagement years for retirement planning, Coughlin said. Focus groups and study data indicate that people in this age range are concerned not only for their own financial well-being but also for that of their parents and children.
The RII Dialogue – held instead of the originally scheduled 2020 Retirement Income Summit – was an important way of bringing the industry, academics and other experts on retirement issues together to help discuss solutions to the retirement income crisis. Go to the RII’s Research and Insights page to follow the ongoing research and insights from the country’s leading authorities on retirement income.