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Despite financial crisis, retirees leave income on the table, METLIFE study shows


Many May be Paying Unnecessarily for ‘Phantom’ Liquidity Benefit

New York, NY . – At a time when retiree income is being squeezed from all sides, many are paying a significant premium for a benefit – liquidity – they may not be using. This is one of the key findings of a study of more than 1,000 retired respondents released today by MetLife.

The study, conducted by Harris Interactive on behalf of MetLife, finds that more than one-third (37%) of retirees keep the majority of their assets in “liquid” accounts – e.g. accounts that provide ready access to assets – such as CDs, savings accounts and money market funds.

Over the past few months, some retirees have benefitted from this “liquidity bias;” 65% of survey respondents with one-half or less of their assets in liquid accounts indicate that they have experienced market losses because of the current financial and economic environment. But only 49% of those with more than half of their funds in liquid accounts said they suffered market losses. Going forward, however, with liquid instruments now offering historically low yields, retirees may pay a premium for keeping so much of their money on the sidelines – especially if they have no present intention of withdrawing their assets and are passing up potentially higher guaranteed returns elsewhere.

In fact, most (83%) retirees say the interest income from their liquid holdings does not serve as the primary – or even major – source of funding for their basic needs. Moreover, an overwhelming 96% of retirees said “achieving consistent returns of 6% or more” is at least a somewhat important financial consideration or goal.

“The findings point to a disconnect between the perceived need for liquidity and the actual uses of those funds among retirees,” noted Julia Lennox, vice president in the Retirement and Wealth Management Group at MetLife. “If they stay in these liquid assets, over time, many retirees are paying, unnecessarily, for a ”liquidity benefit“ that they may never use. While it’s important that every individual have some portion of their assets in liquid accounts, many are putting the lion’s share of their investable funds in such holdings and, in the process, paying a high price for access they may not need.”

Indecision is the Norm – Fewer than Half Taking Action

The poll also highlights a resistance to taking action in the wake of major market declines. A majority of current retirees (59%) have seen retirement assets shrink as a result of the current economic environment, and many (44%) don’t expect that the return on their retirement funds will keep pace with inflation on the essentials. But only 42% are considering reallocating their assets to products that may provide a higher rate of return. Of those considering reallocating their assets, 47% say they are just not sure how they will do this. To make up for those losses and/or the impact of inflation, only 17% of those who have experienced losses would rebalance their portfolio to get more of a return. Seventy percent would cut back expenses as far as possible.

Of those who are considering reallocating assets, one-fifth are exploring guaranteed income products such as fixed income annuities, 17% are moving or planning to move more assets to bank CDs and/or money market funds, and 14% plan to move more assets to fixed-income strategies. And when asked “would you be willing to give up access to funds currently in an interest-earning account such as a bank CD or money market account if you could earn a significantly higher guaranteed return” only 12% of retirees said yes, while almost two-thirds of respondents were undecided. Of those who did not agree, an additional 24% said yes when presented with a guaranteed return of 6%-8% -- yet 49% say that income preservation/guarantees are important when selecting savings and income products.

Flying in the Dark?

Perhaps leading to this indecision, many American retirees who have interest-rate-sensitive accounts demonstrate a lack of knowledge and understanding about the products they currently own. In fact, one-fifth (21%) don’t know the interest rates for any of their interest-rate-sensitive accounts, and an additional 29% only know the interest rates for some of these products – this despite the fact that 47% put their money in these products specifically because of the interest rates they yield. Among those who do know the interest rate, 63% say those assets are generating less than 4% per year.

“The goal for retirees right now is to achieve an optimal mix of investments, liquidity and protection products. For most retirees, this means giving up some – but not all – of that liquidity in favor of products such as income annuities that may provide more income with guarantees,” Lennox summarized.


Harris Interactive fielded the study on behalf of MetLife from October 1-10, 2008, interviewing a nationwide sample of 1,027 retired U.S. adults aged 63 years and older who own at least one of six savings/income products: 401(k), Mutual Funds outside of a 401(k) or IRA, Bank CDs and/or Money Market Account, Annuities, Savings Account, Individual Stocks and Bonds.

Data were weighed using propensity score weighting to be representative of the total U.S. adult retiree population aged 63 and older on the basis of region, age within gender, education, household income, race/ethnicity, and propensity to be online. No estimates of theoretical sampling error can be calculated; a full methodology is available.


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