The FIDx Five: Fourth Edition

Retirement, Annuity, and Fintech Insights

In this week's edition, we look at the current state of 401(k) plans, how financial professionals and consumers are adjusting to rising inflation and market concerns, and 2022 annuity sales forecasts. 

Annuity Sales Projection
According to Limra, annuity sales are projected to reach up to $288 billion in 2022. This would be an all-time high in annual annuity sales, and a $33 billion increase from the previous year. With the S&P 500 down nearly 22%, interest rates rising, and inflation/recession concerns gaining more traction, the increase in annuity sales projections makes sense. Rising interest rates have also led insurance companies to offer better payouts and guarantees compared to recent years. (Greg Iacurci, June 9th, 2022, Annuity sales rise, buoyed by market fears and higher interest rates. What to know before you buy, Link)

Inflation Effects
Americans ages 45-75 are becoming increasingly concerned about inflation. 81% of Americans ages 45-75 are concerned about inflation reducing their spending power in retirement while 79% of that same group are concerned about a recession. Furthermore, increasing inflation is already having a large effect on what people are doing with their money, as 60% of Americans have already significantly reduced their spending. (Haley Fry, July 11th, 2022, Four out of Five Americans Cite Inflation and Recession Anxieties as Top Retirement Income Concerns, Link)

Financial Professionals Altering Retirement Planning Approach
According to a study done by the Alliance for Lifetime Income, nearly 80% of financial professionals have changed the way they approach retirement planning in 2022. 82% of financial professionals cite inflation as a reason for the change in approach, 52% cite bond factors, and 48% cite interest rates. Amidst the current climate, a third of financial professionals are more likely to recommend an annuity as an alternative to traditional asset allocation strategies. (Haley Fry, July 11th, 2022, Four out of Five Americans Cite Inflation and Recession Anxieties as Top Retirement Income Concerns, Link)

The Ideal Savings Rate
According to Vanguard, the ideal retirement savings rate is 12-15% of your annual income. To gauge the impact a successful savings rate can have over time we can look at the average 401(k) balance for different age groups. For account holders ages 25 or under, the average 401(k) or 403(b) account balance was $6,264 in 2021. For people ages 45-54, the average 401(k) or 403(b) account balance was $179,200 in 2021. For people ages 65 and above, the average 401(k) or 403(b) account balance was $279,997 in 2021. (Alicia Adamczyk, July 7th, 2022, Retirement Account Balances Hit a Record High Last Year. Here’s How Much the Average 401(k) Investor Has Saved at Every Age, Link)

Market Concerns
The stock market has taken a major hit so far in 2022. The S&P 500 has dropped 24% since its record high in January, and the Nasdaq has dropped more than 30% from its November peak. Retirement accounts like 401(k)’s have been directly impacted by these losses. According to Vanguard, about 76% of all 401(k) assets are in stocks. Overall, retirement accounts have lost about $3 trillion dollars so far in 2022. (Irina Ivanova, June 17th, 2022, Stock market's fall has wiped out $3 trillion in retirement savings this year, Link)

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