Daily Gains Letter

U.S. Retirement Confidence Way Down as Investors Flock to Products, Services That Reduce Risk

By for Daily Gains Letter |

U.S. Retirement Confidence Way Down as Investors FlockRetirement confidence seems to follow the trends of the global economy. At least, that’s according to one recent survey that looked at 12,000 workers and retirees in 12 European, North American, and Asian countries, including France, Germany, Hungary, Japan, the Netherlands, Poland, Spain, Sweden, China, the United Kingdom, the United States, and Canada—making this one of the largest studies of its kind.

The study found that 65% of the participants believe future generations will be worse off in retirement than they are today; more than half of the American workers (55%) feel that way, while 80% of the workers from France and Hungary expect future generations to be worse off. The Chinese are the least pessimistic, with roughly one in five participants feeling the same way. Only nine percent of respondents believe future generations will be better off in retirement than those in retirement today.

Thanks to government cutbacks, 63% of employees think their government retirement benefits will be less reliable or helpful; American workers come in near the top at 65%. America’s retirement pessimism continues, with just 12% saying their personal retirement planning is “very well-developed.”

A further 37% of Americans don’t know if they can achieve their desired retirement income. Only 12% are very optimistic that they will have enough money to live on, and only another 12% are very optimistic that they will be able to choose when they retire.

Not surprisingly, you have to have a handle on what it takes to retire to actually be able to plan for a comfortable retirement. The current retirement-related risks have increased on the backs of “financial illiteracy”—with only 20% saying they are “very able” to understand financial matters related to retirement planning.

That is also an interesting finding. Even though one-fifth of people claim they are “very able” to understand such matters, only nine percent say their retirement planning process is “very well developed,” and nine percent have a written plan for retirement.

These numbers are not entirely unexpected when you look at the U.S. economy. The stock market may be hitting new highs almost weekly, but that hasn’t trickled down to average Americans, for whom unemployment and personal debt remains stubbornly high, wages are stagnant, and gross domestic product (GDP) growth is lukewarm.

The bull market may be raging on, but the U.S. economy isn’t. As a result, many Americans remain wary of taking on risk when it comes to their retirement savings. More than half (53%) agree that, as a result of the financial crisis, they “will take fewer risks when it comes to saving for retirement,” and 42% say that they are “looking for investment products which offer greater protection against volatile markets.”

To better prepare themselves for retirement, Americans are becoming increasingly interested in products and services that help them reduce risk, including those that provide a guaranteed income in retirement.

Often viewed as too complex and expensive, many are beginning to give annuities a second look. In an effort to draw investors back in and help reduce their exposure to market risks, financial institutions are providing low-cost, variable annuities that offer a broader range of alternative investments, including hedge funds, currency funds, and managed futures.

Annuities are similar to a self-directed pension and can provide a steady stream of cash for a defined period of time. They can also be an excellent option for those looking for cash flow during retirement.

Unlike fixed annuities that are guaranteed by an insurance company, variable annuity payments are tied to the performance of an underlying investment and can fluctuate.

There is no one-size-fits-all retirement investment strategy, and there is no one-size-fits-all investment that is right for everyone. For risk-averse investors, there are a number of great variable annuities out there that can meet your short- and long-term retirement goal needs.

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