Retirees Experiencing a Different Kind of Liquidity Crisis

  • Originally published December 30, 2010 , last updated May 27, 2016

As expected, the economic crisis at the end of 2008 sparked a "flight to safety" among investors, especially retirees who are looking to protect what was left of their savings.

But a study by Harris Interactive on behalf of MetLife indicates that some retirees may have gone too conservative. The study, which polled 1,000 retirees, found that more than one-third (37%) keep the majority of their assets in liquid accounts, such as CDs, savings accounts and money market funds.

These types of accounts certainly help protect people from suffering market losses. However, they can also choke off potential future gains — especially in today’s interest rate environment — putting seniors at higher risk for outliving their assets.

These findings, while troubling, signal an opportunity for annuity producers to help these find products that will actually meet their needs for both growth and security.

Sacrificing Returns for Liquidity They're Not Even Using

One of the Harris study’s findings, in particular, suggests an over-abundance of liquidity among retirees: 83% of those surveyed said the interest income from their liquid accounts does not serve as a major source of income for them. This is a huge red flag, and an opening for annuity producers to make a strong case for re-allocating those funds to a fixed annuity that will offer similar principal protection with higher returns.

Of the 1,000 retirees polled, 96% said “achieving consistent returns of 6% or more” is at least somewhat important. Chalk one up for the retirees; they got this one right. Achieving consistent returns that outpace inflation is critical in a retirement that could last 25 or 30 years. However the same people who are looking for consistent returns of 6% or more are not getting anywhere near that in their liquid accounts. These retirees are sacrificing the returns they would like to achieve for liquidity that they are not even using.

Ideally, retirees should seek a balance of fixed assets offering guaranteed principal and more aggressive avenues that offer more potential for growth. Fixed indexed annuities strike an excellent balance between those two sides of the spectrum. They are especially attractive in today’s economic environment. With historically low interest rates on one end and roller-coaster volatility on the other, you can position fixed indexed annuities as the sweet spot in the middle.

Retirement planning is all about identifying problems and offering solutions. When dealing with clients who are overly dependent on liquid accounts, the problem is simple: a one or two percent rate of return isn’t going to cut it. A fixed indexed annuity that offers a realistic shot of earning double that, or more, could be the solution.