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WINDSOR, Conn., Oct. 5, 2011 — A new LIMRA study reveals that 45 percent of retirees still have their assets in their retirement savings plans with their employers, most frequently in their 401(k) plans, and almost a fifth of retirees own three or more IRAs in their households.

The online survey of retirees was conducted in October 2010. Qualified respondents were aged 55 to 79; had been retired for at least one year and had not worked for pay within the past year; and had household incomes of at least $35,000. Furthermore, qualified respondents were personally involved in making decisions about their household savings and investments.

“While many retirees may think retaining multiple retirement plans or IRAs is a good diversification plan, doing so can make it difficult to measure whether their investments are effectively aligned with their retirement goals,” said Jafor Iqbal, associate managing director of LIMRA Retirement Research. “Consolidating assets under one professional manager or institution gives retirees access to information and guidance, typically at a lower cost, to help make the most out of a retirement plan.”

Among the survey respondents, 23 percent said they have relationships with insurance companies. The mass affluent retirees with assets of $100,000 to $500,000 are more likely to have relationships with insurance companies than any other market segments. However, as a whole, retirees have only 9 to 10 percent of their assets invested in products and services offered by insurance companies.

With more than $400 billion in the annual IRA rollover market, it is important that insurers understand what motivates retirees and pre-retirees to rollover or consolidate their money with a financial firm.

1. Provide online resources. According to LIMRA consumer surveys, retirees start to think about the decision of what to do with their retirement plan balance well in advance of retirement. Providing online resources like retirement calculators and checklists can help insurance companies develop relationships with employees approaching retirement and build brand awareness.
2. Be responsive and ready to react quickly. Once they retire, those that do roll over their assets move their money fast. Earlier LIMRA research shows majority of retiree assets leave their employer-sponsored plans within the first 12 months of their retirement.
3. Provide a comprehensive plan which creates a retirement income stream and addresses other risks retirees face. Retirees and pre-retirees will typically need to make a series of retirement-related financial decisions starting at age 59 ½, the age at which they can withdraw from their tax-qualified assets without penalty, to age 70 ½, when they must take IRS required minimum distributions (RMD) from their qualified savings. In between, they have to evaluate when to take Social Security benefits and enroll in Medicare and its supplements. All of these financial decisions can be part of a retirement plan. LIMRA research shows that many investors are buying guaranteed income annuity products at these key age-based financial decision points.
4. Reach out to pre-retirees and establish a relationship before they enter retirement. Existing relationships are critical to securing rollover business. A financial planner or advisor is often the first person retirees or pre-retirees consult regarding the rollover decision if they have an existing relationship. If possible, offering personalized investment guidance can be a way for companies to strengthen relationships and increase their chances of retaining assets.
5. Offer guidance about taxes and other required distributions. Retirees both under and over age 70 need help managing their retirement plan assets to ensure they comply with all legal requirements. Sixty percent of retirees above age 70 who are taking withdrawals are only doing so to meet IRS required minimum distributions and they often take withdrawals through systematic withdrawal plans. The current research finds that most retirees get help from a financial professional or a phone representative to set up the plan.

“Bottom line, insurers need to do a better job communicating with their clients and prospects before they retire, when they are still making decisions on how to invest their money in retirement,” Iqbal noted. “The difference between capturing the assets and losing them to a competitor is whether you are with your clients when they have to cross some of the financial decision points before and during retirement.”

LIMRA Contacts:

Donna G. Sullivan, 860-285-7875, dsullivan@limra.com
Catherine Theroux, 860-285-7787, ctheroux@limra.com

About LIMRA

LIMRA is a worldwide research, consulting and professional development organization that helps more than 850 insurance and financial services companies in 73 countries increase their marketing and distribution effectiveness. Visit LIMRA at www.limra.com.