Investors who work with financial advisers are increasingly concerned about retirement income planning rather than accumulation-focused investment planning, says Hartford Financial Services Group Inc., and this could stimulate sales of products designed to guarantee income for life.
Several investment and insurance products already exist to prevent investors from outliving their assets in retirement, said John Diehl, a financial planner for the Hartford, Conn., insurer. Banks and advisers may see an increased demand for annuities as investors look to guarantee sufficient income for life, he said.
Immediate annuities may be of particular interest to retirees because they involve a specified-payment plan that starts immediately, said Ken Kehrer, the president of the Kenneth Kehrer Associates consulting firm in Princeton, N.J. But few banks seem to be actively marketing the product, he said.
Overall, bank sales of immediate annuities amounted to about 0.7% of fixed annuity premium last year, according to a study by the Kehrer firm.
A combined 62% of respondents to a Hartford survey whose results were announced last month said either planning for retirement or ensuring they do not outlive their savings was a primary goal in working with a financial adviser. Hartford interviewed 502 investors 50 to 65 years old.
The intensified focus on maintaining a steady stream of post-retirement income may lead to heightened investor demand for products such as annuities and Health Savings Accounts, or HSAs, from banks and other financial services providers, Mr. Diehl said.
HSAs are investment vehicles that let investors withdraw money tax-free to cover medical care not paid for by high-deductible health plans.
“You can follow the age progression,” Mr. Diehl said. “Ten years ago, investors had more awareness” of accumulation. Today “they’re looking for income vehicles” more than asset appreciation.
Retirement-bound investors may also be interested in investment products — such as floating-rate income funds or Treasury inflation-protected securities, known as TIPS — that counteract inflation’s effects, Mr. Diehl said.
Floating-rate income funds, which invest in debt instruments such as senior loans, offer investors bigger income potential during periods of higher interest rates. And TIPS’ coupon payments and underlying principal are automatically increased to compensate for inflation as measured by the consumer price index.
Hybrid mutual funds that combine fixed-income and equity components may also lure retirees, many of whom want an income guarantee while retaining upside potential if the equity markets revive, said Burton Greenwald, an analyst at BJ Greenwald Associates in Philadelphia. Rising longevity means that fixed-income products alone will prove insufficient to maintain income in retirement, he said.
Equity-linked mutual funds that allow for monthly withdrawals may also prove popular with investors approaching retirement, Mr. Greenwald said.
Health Savings Accounts may also become more popular, given that meeting health-care needs is a pressing concern for people approaching retirement, Mr. Diehl said. However, HSAs may be only the tip of the iceberg in terms of health-care-related investment products, according to the financial planner.
“HSAs are a good first step, but I think there may be more offerings on the horizon,” said Mr. Diehl. More investors may take advantage of HSAs if their contribution limits are raised, he added.
Investors are also seeking a more comprehensive approach to financial planning, the survey said. Twenty-eight percent of respondents use advisers to manage their taxes, and 25% work with them on estate planning. And 25% also said they use their advisers to plan for medical or long-term-care needs.
“Financial advisers are doing everything from helping people plan for paying for college to helping people decide when to retire,” Mr. Diehl said.
However, the Hartford survey said only 36% of respondents gave 80% or more of their assets to their advisers to manage, indicating that advisers have an opportunity to capture a bigger share of clients’ assets by offering broader planning services, according to Mr. Diehl.
“It’s very important to have an overall comprehensive view of clients’ assets,” he added.
