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Dramatic shift in retirement investment risk tolerance could be boon for annuities

Insurance Forums Staff

Americans’ appetite for retirement investment risk has been declining since the COVID-19 pandemic started messing with the markets, which could be good news for annuity products, according to a new study.

One in four Americans say they have a lower risk tolerance for future retirement investments because of the COVID-19 pandemic, according to the study by the Alliance for Lifetime Income focused on issues facing Americans approaching or in retirement.

The crisis has also prompted 16% of respondents to consider the benefits of protected lifetime income that an annuity or pension provide—an indication that Americans are shifting towards investments that offer protection from market volatility.

The second COVID-19 Retirement Reset Tracker—conducted from April 13 to 20—shows the crisis may be driving a dramatic shift in risk tolerance and changing retirement investing behavior for the long-term. Of those concerned about the impact of COVID-19 on retirement investments, 54% say their concern is due to future unpredictability. Three out of four respondents are concerned about the pandemic’s impact on retirement investments.

Losses in the stock market topped health care costs as the leading concern of those lacking confidence that their income will cover their expenses in retirement (75% vs. 60%). While having a diverse portfolio (56%) and a source of protected lifetime income (52%) are top factors that alleviate worry among the one in four who are not concerned about COVID-19’s impact on their retirement.

“The stock market’s historic drop in March was followed by its best month in more than 30 years, which has left many retirement investors with whiplash,” said Jean Statler, CEO of the Alliance. “The pandemic and resulting economic conditions have introduced historic levels of uncertainty, leading many Americans to reconsider the risks to their retirement portfolios and the importance of having a source of protected income in their plans to provide a level of certainty. Americans want to feel confident that they won’t run out of money in retirement. This study shows us where people are finding confidence, even in the midst of this crisis: a diverse portfolio and sources of protected lifetime income, like an annuity. People who have annuities in their portfolio can count on a steady income stream despite the market volatility and are able to be more patient as they wait for the rest of their investments to recover.”

The COVID-19 Retirement Reset Tracker is an ongoing effort by the Alliance to measure the impact of the crisis on the retirement planning behaviors, perceptions and attitudes of Americans who are approaching retirement or are currently retired. Below are additional measures from the study that the Alliance will track on a regular basis:

Emotional responses to the investing environment

  • Watching the markets closely (37%) vs. Ignoring the markets as much as possible (63%)
  • Active in the market (13%) vs. Holding my ground in the market (87%)
  • Agitated (52%) vs. Numb (48%)

Levels of optimism

  • U.S. economic situation: 8% extremely optimistic vs. 40% extremely pessimistic
  • Own financial situation: 33% extremely optimistic vs. 9% extremely pessimistic

Investing and financial behavior

  • Spending less (71%) vs. Spending more (4%)
  • Investing less (19%) vs. Investing more (6%)

This online survey was conducted April 13-20, 2020 among 1,231 adults ages 56 to 75 who are employed (full or part-time, or furloughed due to COVID-19) or retired (fully retired or retired but working part-time). All have a minimum of $100,000 in assets.




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