Financial products with guarantees are likely to keep people invested in the stock market even in the face of short-term losses, according to a study from Prudential Financial.
Almost nine out of ten (84 percent) of the "2006 to 2011: Changing Attitudes About Retirement Income" survey respondents indicated that if they had a retirement investment product with guaranteed income, they would likely stay in the stock market even if they were to experience short-term losses, and 76 percent said that they would stay invested for the longer-term horizon. Both of these measures are higher than in 2006 by 10 and four percentage points, respectively.
"When investors take risk off the table by getting out of the stock market, they potentially increase the risk that they will not be able to generate the returns they need to achieve their retirement goals," said Stephen Pelletier, President of Prudential Annuities. "While annuities and other products that guarantee a stream of income can help meet Americans' retirement income needs, this research demonstrates that such products are also more likely to keep people invested in the stock market—with the potential for higher returns, protection from market declines and benefits to the economy overall."
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Underscoring investor concern about the financial markets, the survey shows that over the last five years Americans have become more worried about retirement investment strategies. Almost six in ten are concerned about how much income they will need in retirement; 56 percent question whether their investment strategy is right for their retirement needs (a jump of 11 percent compared to 2006), and more than two-thirds (68 percent) say they are more cautious than ever before. Nearly three-quarters (73 percent) are concerned about a significant decline in the stock market immediately before or after their retirement.
Almost half (47 percent) hesitate to invest more in the market despite future growth opportunities. Reflecting a more cautious mindset, 60 percent feel that investing too aggressively is a greater risk to their retirement security than investing too conservatively, an increase of nine percentage points compared to 2006. More than eight in ten (84 percent) are concerned about inflation eroding the value of their retirement savings.
"The growth we have seen in the annuities market over the last two years reflects the increasing recognition of the value of guaranteed income products as part of an overall retirement planning portfolio," added Pelletier. "The financial industry has been responding to increased demand for guarantees with innovative products and increased capacity to meet investors' needs."
The survey shows increased awareness of guaranteed retirement income products and strong interest in them. Three quarters of investors find these products appealing and more than eight in ten (82 percent) see them as a valuable addition to their portfolio. More than half (52 percent) say that having stable income in retirement is a leading concern.
For financial advisors, the survey underscores the value investors place on getting good advice; it also highlights a five year trend of investors becoming more self-reliant. While half (48 percent) said they want guidance on the financial issues they need to be thinking about and the solutions that may be best for their situation, the percentage of do-it-yourself investors over the past two years has grown from 23 percentin 2009, to 32 percentin 2011. Today, more than three-quarters of investors report they hold themselves more accountable for investment decisions (78%).
Prudential's study polled 1,001 Americans in an online survey from May 4 – 12, 2011. The study compared data on investors' retirement planning attitudes and concerns, to similar studies conducted in 2009 and 2006.
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