Questions to be Answered:

Retirement Security and the Affluent

Walter H. Zultowski, Ph.D. WZ Research + Consulting, LLC

RIIA Webinar January 19, 2011

Questions to be Answered:

• What are the retirement security needs and concerns of the affluent?

• How are these needs and concerns changing?• What about the longevity risk?• How are they adjusting?• What about the use of annuities?• Are they getting help?

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Source:

• The Phoenix Wealth Survey• Annual survey of affluent households ($1M+ of net

worth, not including primary residence)• Conducted continually for 11 years; 2000 – 2010• Most recent data collected First Quarter, 2010• To be continued in 2011 as the “LIMRA Affluent

Monitoring Program”

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Retirement Security Needs and Concerns

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A Goal Most Important Goal

Comfortable std of living in retirement 87% 46%

Not running out of money in retirement 80% 23%

Health insurance in retirement 68% 3%

Long-term-care for self/spouse 66% 5%

Protect estate from taxes 60% 5%

Minimize income/capital gains taxes 47% 4%

Leave estate to heirs 45% 4%

Children’s college education 20% 5%

Transfer wealth to beneficiaries 19% 2%

Care for parents/in-laws 14% 1%

Source: 2010 Phoenix Wealth Survey

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Financial Goals

$1 - $2M $2 – 3M $3 - $5M $5M+

Comfortable std of living 47% 51% 47% 26%

Not running out of money 26% 18% 17% 17%

Long-term-care for self/spouse

4% 10% 6% 4%

Health insurance in retirement

3% 1% 3% 7%


Most Important Retirement Goals by Level of Wealth

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Inflation eroding value of assets 55%

Poor investment performance diminishing assets 51%

Assets depleted too quickly 50%

Unforeseen healthcare expenses wiping out assets 49%

Outliving assets 47%


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Financial Risks to Retirement Security

$1 - $2M $2 – 3M $3 - $5M $5M+

Inflation eroding value of assets

56% 59% 56% 43%

Poor investment performance diminishing assets

52% 52% 52% 41%

Assets depleted too quickly

53% 46% 51% 33%

Unforeseen healthcare expenses wiping out assets

52% 51% 47% 32%

Outliving assets 48% 49% 42% 37%


Financial Risks to Retirement Security by Level of Wealth

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How Are These Needs and Concerns Changing?

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Most Important Financial Goal Over Time

19%21%

25% 23%20%19%

47%46%

41%44%43%

46%

0%

20%

40%

60%

80%

100%

2005 2006 2007 2008 2009 2010

Not running out of money in retirement Comfortable std of living in retirement

Source: Phoenix Wealth Survey10

2007 2008 2009 2010

Inflation eroding value of assets

42% 50% 50% 55%

Poor investment performance diminishing assets

33% 39% 51% 51%

Assets depleted too quickly

36% 40% 44% 50%

Unforeseen healthcare expenses wiping out assets

43% 44% 42% 49%

Outliving assets 33% 35% 40% 47%

Source: Phoenix Wealth Survey

Financial Risks to Retirement Security Over Time

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What About Longevity?

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Current Age Median Life Expectancy

< 46 86

46 – 54 82

55 – 64 87

65 + 87


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The Psychology of Longevity

Better Than Peers

Much Better Than Peers

Same As Peers

Worse Than Peers

Much Worse Than Peers

30%

41%

6%

21%

The Psychology of Longevity

2%

Source: 2009 Phoenix Wealth Survey 14

Description of Current Health Relative to Peers

Importance of Longevity Planning

19%

33%

26%

17%

5%

0% 10% 20% 30% 40% 50%

Not At All Important

Somewhat Important

Important

Very Important

Extremely Important


How Are They Adjusting?

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No

Not Sure

Yes

9%

79%

12%

Planning on Retiring Full-Time Someday?


In Terms of Current Income 2006 2007 2008 2009 2010

Less than 80% 19% 17% 22% 21% 24%

80% to 100% 40% 36% 41% 36% 37%

100% 28% 32% 25% 29% 28%

101% to 120% 7% 8% 6% 6% 6%

Over 120% 6% 7% 6% 8% 5%


Definition of a Comfortable Standard of Living in Retirement

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The Use of Annuities

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Ownership Total $1 - $2M $2 – 3M $3 - $5M $5M+

Variable Annuities 18% 16% 16% 22% 27%

Fixed Annuities 15% 13% 16% 16% 25%

Future Purchase Intentions

Variable Annuities 5% 3% 5% 8% 16%

Fixed Annuities 4% 2% 5% 5% 16%


Use of Annuities by Level of Wealth

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Are They Getting Help?

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Total 72%

$1M - $2M 69%

$2M - $3M 71%

$3M - $5M 77%

$5M + 82%


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Percent With a Primary Financial Advisor by Level of Wealth

Primary Advisor Assists With…

Interested in Receiving from Primary Advisor…

Investing Advice 75% 7%

Financial Planning 67% 12%

Asset Allocation 54% 10%

Retirement Planning 54% 12%

Tax Planning 40% 18%

Estate Planning 37% 16%


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What Are They Getting Help With?

Total 26%

$1M - $2M 21%

$2M - $3M 27%

$3M - $5M 30%

$5M + 48%


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Percent With an Advisor for Life Insurance by Level of Wealth

No

Have Not, But Plan To

Yes

34%

29%

37%

Talked to an Advisor About Longevity Planning?


Asset Allocation Strategies 53%

Deferred Annuities 50%

Managed Distribution Offerings 48%

Payout Annuities 39%

Longevity Insurance 29%

Other 6%


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Longevity Planning Solutions Discussed

Observations…

• Wealth does not ameliorate retirement security concerns

• Traditionally, retirement security for the affluent was primarily about lifestyle protection

• The Great Recession has heightened their concern over all risks associated with retirement security, even the risk of outliving assets

• The affluent would rather change their lifestyle in retirement than continue working

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Observations (cont’d)…

• The affluent market is underpenetrated when it comes to annuities

• The affluent market is highly penetrated when it comes to having advisors

• But, the majority of those advisors approach retirement planning with an investment/asset allocation mindset rather than an insurance mindset

• Longevity planning, as a subset of retirement planning, is of interest to the affluent

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Opportunities

• Annuities, in general, should witness an increase in sales

• The bigger opportunity rests in positioning and promoting retirement security as an insurance problem, not just an investment/asset allocation problem

• Educate, and work with, investment-oriented advisors on this opportunity

• New products:– Insurance wrappers applied to investment

products/portfolios– Indexed annuities (a return play on the fixed portion of a

client’s portfolio)

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Questions?

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860-471-3692 | www.wzresearch.com

Questions to be Answered:

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