New Data: Extreme Lack of Diversification Could Add to Retirement Crisis
Balance Gained By Considering Alternative Financial Products Like FIAs
The retirement crisis has become a topic of conversation in the United States, and while its actualization is still widely debated, there is no doubt Americans need to take additional steps in order to ensure a financially stable retirement – one that allows them to cross off items on their bucket list while managing to pay for medical bills and other essential costs of living.
New data from the Indexed Annuity Leadership Council (IALC) shows most Americans are at risk of an unstable retirement. In fact, only nine percent are focused on diversifying their portfolio which is essential to managing financial risk especially when it comes to saving for retirement. If the majority of your retirement savings are in the stock market, when it takes a downturn, the risk of losing it all is real. A diversification strategy can ensure balance and provide retirement planning peace of mind.
That said, it can be hard to create diversity if you don’t know what products to add to your portfolio. The same study found 22 percent of Americans are not familiar with the most routinely used retirement products, such as mutual funds, Certificate of Deposits (CDs), and Fixed Indexed Annuities (FIAs), that would allow them to diversify their portfolio.
In order to address this gap and diversify your financial strategy, consider FIAs as a means to help create a foundation of conservative growth and to ensure a steady income during retirement. With both growth potential and principal protection, FIAs can be a complementary product within your existing portfolio since FIAs are not subject to the volatility of the stock market.
“Research a wide variety of products to find the ones right for you in your journey to financial diversity. Look at products you may not have considered before, such as FIAs , which can help protect your nest egg from market downturns, help to guarantee income throughout your entire retirement, and offer growth without experiencing the downside of the market,” says Jim Poolman, Executive Director of the IALC.
While FIAs are a balanced and secure way to receive a steady income during retirement, there are widely held misconceptions about this financial product as well as the available income options it can offer in retirement.
One commonly held myth is that any retirement account can generate guaranteed lifetime income. In fact, one in five Americans incorrectly believes a 401(k) allows you to receive guaranteed payments throughout your retirement, regardless of how the stock market performs. In reality, only annuities, including FIAs, offer the option to guarantee a steady income stream for your whole retirement.
Another common misconception about FIAs is that they are too complicated and complex. In contrast, almost half of Americans clearly understand FIAs main benefit of providing income for the rest of their lives. FIAs offer a simple story: growth potential without risk of loss due to market downturns and a steady income stream in retirement.
While the stock market continues to perform well, everyone remembers the down turn in 2008. It’s important to take steps toward balancing your portfolio to protect against market swings and avoid a retirement crisis. As an investment strategy and a way to balance a retirement portfolio, FIAs are appealing because they transform savings into predictable income.
About the Indexed Annuity Leadership Council
The Indexed Annuity Leadership Council (IALC) brings together a consortium of life insurance companies with a commitment to providing consumers, the media, regulators and industry professionals complete and factual information about the use of fixed indexed annuities. Namely, that these products provide a source of guaranteed income, principal protection, and interest rate stability in retirement as well as balance to any long-term financial plan. To date, IALC member companies have more than 1.3 million policies in force with more than $84 billion in assets.
Data trends were compiled from Toluna’s online panel in April 2017, among n=1000 adults (ages 18 and over).