Protected-income demand is outrunning advisor delivery

Nearly nine in ten Americans approaching retirement say they have thought about how they will replace their paycheck once it stops. Half have not updated that plan recently, according to LIMRA's Retirement Income Readiness Report, released this week and reported by InvestmentNews.

The report draws on an April survey of 486 pre-retirees and 804 retirees, all aged 45 and older. Most respondents rated themselves reasonably prepared: 59% of pre-retirees and 63% of retirees put themselves in the high end of a zero-to-ten preparedness scale.

The sharpest pattern is the link between preparedness and advice. Pre-retirees who work with an advisor reported high preparedness 77% of the time, versus 47% for those without one. Yet only 40% of pre-retirees have an advisor, and within the least-prepared group the share is 8%. The least-prepared pre-retirees are the least likely to be getting that advice.

Demand for protected income is broad. Roughly seven in ten respondents, pooling pre-retirees and retirees, prefer retirement income that includes a protected component — Social Security, a pension or an annuity — over relying solely on portfolio withdrawals. The expectation side is thinner. Just 25% of pre-retirees believe their protected income sources will cover essential living expenses. Retirees answer differently: 52% say those sources fully cover basic costs today.

Bryan Hodgens, LIMRA's senior vice president and head of research, reads the survey as a directive to the industry. "Consumers are telling us exactly where the industry can help," he said in the report. "They value guaranteed lifetime income, they're worried about outliving their money, and three-quarters of them are raising their hands to learn more."

Jason Fichtner, executive director of the LIMRA Retirement Income Institute and a former deputy commissioner of the Social Security Administration, said the anxieties behind those raised hands are specific: prices that will not stop rising, an unexpected health shock, the fear of outliving savings. The job, he said, is to give people reliable tools to manage those risks, not just reassurance.

The report puts a frame around a familiar mismatch: pre-retirees want a type of retirement income the industry has been slow to deliver. InvestmentNews, which covered the research, notes that advisor adoption of the products built to deliver protected income has lagged behind client demand.

For an RIA principal, the number that carries the most weight is the 25% figure. A client who wants protected income but does not expect it to cover essentials has an open question inside their retirement plan — and an open question is where advice earns its keep.