Debut study on Longevity Risk kicks off Jackson
Security in Retirement Series conducted in partnership with the
Center for Retirement Research at Boston College
Jackson National Life Insurance Company (Jackson®), the main
operating subsidiary of Jackson Financial Inc.1 (NYSE: JXN), today
released key findings from its comprehensive study on how retirees
and financial professionals perceive retirement risk and the
possibility of outliving income. The study is part one of Jackson’s
Security in Retirement Series conducted in partnership with the
Center for Retirement Research at Boston College. This multi-phase
research effort explores the potential threats to financial
security in retirement and how financial professionals and
retirement investors can more effectively manage these threats.
Longevity risk is more significant than ever before: every day,
an estimated 10,000 baby boomers reach the traditional retirement
age of 65,2 life expectancy has increased significantly over the
past century,3 and the use of employer-based pension plans has
declined.4 A key challenge facing retirees is how not to exhaust
their assets when faced with the possibility they may live longer
than expected.
Jackson’s work with the Center for Retirement Research aims to
help retirement investors and financial professionals better
navigate financial challenges in this unprecedented era. The study
entails comprehensive, academic research focused on the dynamics of
the annuity puzzle,5 a phenomenon where retirees, despite sound
reasons, do not create guaranteed retirement income streams. In
addition to interviews with financial psychologists, financial
professionals and retirement investors, the research included
online surveys of more than 400 financial professionals and 1,000
retirement savers with investable assets over $100,000. The goal of
the research was to provide useful, actionable, research-based
insights.
Select findings from the research include:
- People don’t know how to estimate life expectancy. The
vast majority of those surveyed are either over- or
under-predicting their potential longevity, while only 12% align
with averages in Centers for Disease Control and Prevention (CDC)
or Social Security Administration actuarial tables. Overall, more
than a third of investors may be under-predicting their potential
longevity, increasing the likelihood they will outlive their assets
and potentially suffer a lifestyle decline.
- Parent’s age of death is the most common method used to
predict life expectancy. More than 40% of the investors
surveyed rely on the age of a parent at death to project their life
expectancy. While useful, this data point is not considered a
reliable predictor, particularly given that life expectancy has
increased over time.
- Young investors (between the ages of 55 and 59) are most
likely to underpredict life expectancy by an average of nearly five
years, posing a unique challenge for early pre-retirement
planning. Secondarily, the lower an investor perceives their
own physical health, the greater the underprediction of life
expectancy.
- Investors tend to display recency bias6 when planning for
retirement. Investors tend to consider recent experiences more
heavily when they engage in financial planning — indicating an
overestimation of inflation and an underestimation of investment
returns compared to historical averages.
- Financial professionals predict longer lives than their
clients. One-third of financial professionals surveyed report
at least 25% of their clients are at risk of outliving their assets
if they live to age 90. Most investors surveyed predict an average
lifespan of 87 years, while financial professionals surveyed
recommend planning for income to last until 90-95 years of
age.
- Over half of investors expressed interest in an annuity that
guarantees7 lifetime income. This interest far exceeds the
current ownership rates of annuities.8 Many economists believe
using an annuity to insure against longevity risk is an optimal yet
underused approach.
- Financial decision-making may vary by gender. The study
suggested that there are marked differences in preparation for —
and financial behavior in — retirement, based on the gender of the
decision-maker.
“Our research shows that investors saving for retirement are
heavily influenced by recency bias, misguided heuristics, or
emotional factors, such as the health of their parent. As a result,
the vast majority of investors inaccurately predict life
expectancy, which significantly increases the risk that they will
deplete their resources,” said Glen Franklin, Assistant Vice
President of Research, RIA and Lead Generation Strategy for Jackson
National Life Distributors LLC (JNLD), the marketing and
distribution business of Jackson. “In fact, financial professionals
surveyed indicate at least a quarter of their clients would be at
risk of outliving their assets if they live to age 90, which is a
real possibility for much of the population.”
Alicia Munnell, Peter F. Drucker Professor of Management
Sciences at the Carroll School of Management and director of the
Center for Retirement Research at Boston College, said, “Living
longer is great, but it requires people to understand the risks
involved and how best to prepare for them. In today’s 401(k) world,
households need to know how they can convert part of their nest egg
into a stream of guaranteed lifetime income. Our research, in
partnership with Jackson, suggests that more people may actually
want to buy annuities than previously thought. The challenge is to
clear away the underbrush that creates the gap between wanting to
buy an annuity and actually doing it so that people can get more
secure retirement income.”
Future studies within Jackson’s Security in Retirement Series
will explore and analyze a selection of critical risks impacting
Americans’ security in retirement, such as healthcare, market
dynamics and policy risk related to government programs. The next
study, focused on inflation risk, will publish in 2024.
To access details and up-to-date findings relative to this
research as well as other proprietary research materials developed
by Jackson on topics that affect the saving and spending habits of
Americans, visit www.jackson.com/researchcenter.
ABOUT JACKSON
Jackson® (NYSE: JXN) is committed to helping clarify the
complexity of retirement planning—for financial professionals and
their clients. Through our range of annuity products, financial
know-how, history of award-winning service* and streamlined
experiences, we strive to reduce the confusion that complicates
retirement planning. We take a balanced, long-term approach to
responsibly serving all our stakeholders, including customers,
shareholders, distribution partners, employees, regulators and
community partners. We believe by providing clarity for all today,
we can help drive better outcomes for tomorrow. For more
information, visit www.jackson.com.
*SQM (Service Quality Measurement Group) Contact Center Awards
Program for 2004 and 2006-2022, for the financial services industry
(To achieve world-class certification, 80% or more of call-center
customers surveyed must have rated their experience as very
satisfied, the highest rating possible).
Annuities are long-term, tax-deferred vehicles designed for
retirement and are insurance contracts. Variable annuities and
registered index-linked annuities involve investment risks and may
lose value. Earnings are taxable as ordinary income when
distributed. Individuals may be subject to a 10% additional tax for
withdrawals before age 59½ unless an exception to the tax is
met.
Annuities are issued by Jackson National Life Insurance Company
and in New York by Jackson National Life Insurance Company of New
York. Variable annuities and registered index-linked annuities are
distributed by Jackson National Life Distributors LLC, member
FINRA. May not be available in all states and state variations may
apply. These products have limitations and restrictions. Contact
Jackson for more information.
Jackson® is the marketing name for Jackson Financial Inc.,
Jackson National Life Insurance Company® (Home Office: Lansing,
Michigan) and Jackson National Life Insurance Company of New York®
(Home Office: Purchase, New York).
1 Jackson Financial Inc. is a U.S. holding company and the
direct parent of Jackson Holdings LLC (JHLLC). The wholly-owned
direct and indirect subsidiaries of JHLLC include Jackson National
Life Insurance Company, Brooke Life Insurance Company, PPM America,
Inc. and Jackson National Asset Management, LLC.
2 Guillaume Vandenbroucke, Federal Reserve Bank of St. Louis,
“How Many People Will Be Retiring in the Years to Come?” May 30,
2019.
3 Aaron O’Neill, Statista, “Life expectancy (from birth) in the
United States, 1860-2020,” June 21, 2022.
4 Jeanne Sahadi, CNN Business, “Traditional pension plans are
pretty rare. But here’s who still has them and how they work,”
September 7, 2023.
5 Popularized by Franco Modigliani in his 1985 Nobel Prize
acceptance speech, the annuity puzzle refers to the fact that few
people choose to create guaranteed income streams from their
accumulated savings even though they may have sound reasons to do
so.
6 Adam Hayes, Investopedia, “Recency (Availability) Bias: What
it is, How it Works,” November 29, 2022.
7 Guarantees are backed by the claims-paying ability of the
issuing insurance company.
8 In the recent "Psychographics of Successful Retirement
Outcomes study," fielded June 8 to 23, 2023 among 2,004 US adults
aged 43 or older, we found that 28% reported owning an annuity.
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version on businesswire.com: https://www.businesswire.com/news/home/20231113653326/en/
Patrick Rich Patrick.Rich@Jackson.com
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