Retirement Income: Where’s the Innovation?

Over the last 3.5 years, more than 10,000 baby boomers have turned 65 every day in the US.  This trend will continue for the next 15 years, as roughly 77 million people were born between 1946 and 1964.  Is this a challenge or opportunity facing the insurance industry?   

According to a June 2013 report written by the American Academy of Actuaries titled Risky Business: Living Longer Without Income for Life, “American workers retiring today face a more pronounced emphasis on individual responsibility and risk for their lifetime incomes than what their parents experienced, partly due to the decline of defined-benefit plans”.  Most of these plans have been replaced by new Defined Contribution Plans such as the 401(k) over the past 30 years and, with their increasing popularity, have pushed the risk of outliving your money onto the retiree.  The same is true with the multi-pillar retirement plans that now exist throughout Europe, Australia and other global regions.   

As these retirees start the dramatic shift from accumulating assets to spending those assets in retirement, we need to ask ourselves one pertinent question:  Where is the innovation in retirement income options?  One can make the case that the industry is still focused only on the accumulation phase and not the income stream that the vast majority of retirees consider paramount.  As distributions are made from existing 401(k) plans, many retirees are seeking income options that include a guaranteed lifetime income stream that they can’t outlive.  A case for new innovative lifetime income options can be made.

Various industry studies suggest that retirees are underestimating the amount of liquid assets they need before and after retirement. Are consumers not seeking or receiving good advice from their financial advisors?  Do consumers even have a financial advisor? Are retirees aware of the income guarantees that annuities can provide?  And what role is longevity risk playing as Americans live longer? 

What is holding back the insurance industry from more aggressively pursuing this growing opportunity?  Perhaps insurers are hesitating due to changing regulatory and liquidity issues.  The major risk that insurers face today is that by not responding to this growing market demand, they leave the door open for others in financial services to opportunistically capture this market. 

It’s no secret that legacy systems are a business impediment for most insurers.  So what role is technology playing in these decisions?  Insurers need more agile solutions that help them capture new market opportunities and grow their business. Systems that manage retirement plans – and managing all the complexities of these consumers – are a key area for increasing efficiencies.

Remember, 10,000 baby boomers a day are retiring. Is your organization equipped to take full advantage of this market trend?