Middle-income Americans will have a more difficult time managing their longevity risk in retirement now that fewer of them have defined benefit plans. Making matters more complicated is that many of these middle-market investors may have saved thousands of dollars throughout their careers in their employer-sponsored defined contribution plans but may not know how they can be certain their money lasts throughout the retirement.

LIMRA’s Retirement Investor Study, published earlier this year, examined middle-income investors’ views of their retirement risks and where annuities might ease those risks.

The research suggests middle-market Americans are aware of their longevity and volatility risks and are increasingly interested in creating a guaranteed income stream to cover basic living expenses. In general, less than half (47%) of today’s working adults (ages 50-75) believe they will be able to cover basic living expenses in retirement with guaranteed income sources. This represents an 11 percentage-point drop from 2017. 

Researchers defined middle-market Americans as those with annual household incomes between $50,000 and $149,900. They found that interest in annuities — both retail and in-plan — is growing in this income bracket.

What’s driving that increased interest? LIMRA’s research found:

» Over the past few decades with the decline in pensions, the longevity risk has shifted from the employer to the worker. In 2023, just 15% of private-sector workers had access to a pension — meaning far fewer have that as a source of guaranteed lifetime income in retirement than in the past.

» Less than half (45%) of middle-market Americans are confident they will not run out of money should they live beyond age 90.

» Equity market volatility has been elevated since the pandemic. Although the markets have grown overall, it has not been without frequent and significant swings. This is causing concern among consumers who have their retirement savings invested in the equities markets, which many do through their defined contribution plans.

» Eighty-eight percent of middle-market Americans say having guaranteed lifetime income gives people peace of mind in retirement.

» Half of middle-market consumers surveyed said they would be interested in converting a portion of their retirement savings into an annuity.

Keith Golembiewski, head of LIMRA annuity research, told InsuranceNewsNet three themes came out of the research.

“The first is loss of DB plans or pension plans,” he said. “If you look over the past decade, the longevity risk has shifted from employers to employees. With only about 15% of private-sector workers having access to a pension in 2023, that means 85% no longer have that DB product.”

The second theme, he said, is market volatility, especially since the COVID-19 pandemic.

“We have equity market volatility, we have a lot of unknowns around consumer confidence, a lot of ups and downs around the job market, depending on what data you look at. And on top of that we have inflation. When you look at all those things, you see that volatility puts more pressure on middle-market Americans and is driving the interest toward some of the downside protection products out there.”

Golembiewski pointed to record-setting annuity sales over the past two years as proof that consumers “want to protect those assets they have been building.” LIMRA reported annuity sales in the first half of 2024 hit $215.2 billion, a 19% jump from prior-year results. That came on the heels of record-setting sales for the first half of 2023.

Longevity is the third theme emerging from the research, he said.

“It’s the unknown about how long you will live. The middle market is worried about running out of money, and I believe it really ties into longevity concerns.”

The research showed many middle-market consumers lack confidence in making sure their retirement savings last throughout their lifetimes. Golembiewski said many in this income bracket “don’t understand or don’t have the toolkit to figure out what they have to do to keep from running out of money. How much can they spend to make sure they don’t outlive their assets? Guaranteed income definitely fits into that concern and can help provide the income and protection middle-market consumers are looking for.”

Advisors can take advantage of what Golembiewski called “the excitement around annuities” to serve middle-market consumers.

“Consumers are in the middle of a transition,” he said. “And this transition will be massive, especially when you think about our population reaching Peak 65. But it’s also a transition around asset accumulation. And there’s a major problem around people not knowing how much they can spend safely in retirement.”

Golembiewski said consumers need help from advisors in figuring out the best way to move from asset accumulation to decumulation.

“When we look at our data that says more than half of middle-market preretirees said they are interested in converting a portion of the assets they have been accumulating into an annuity, I think that shows a strong interest in people needing a professional to provide advice and guidance to them.”

Most Americans know they need to save for retirement, and many middle-market workers have been diligent about doing so. But Golembiewski said individuals in this sector realize “they can’t do it alone” in planning for how to protect those retirement savings.

“You see people become frugal and not living their best lives because of all the unknowns about what to do with the assets they have been building. I think our research shows the need for predictability, for guarantees and for protection of those assets.”

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