One in five Americans incorrectly believes that 401(k) plans guarantee a steady stream of income in retirement regardless of market performance, according to a survey by the Indexed Annuity Leadership Council (IALC). Many respondents also reported the same misconception specifically in regards to mutual funds (22%) and certificates of deposit (20%).
And even though both of these products can provide the benefits of diversification, 22% of respondents were unfamiliar with mutual funds, certificates of deposit and fixed index annuities (FIAs). Moreover, the study found only 9% of survey takers are focused on diversifying their portfolios.
“If the majority of your retirement savings are in the stock market, when it takes a downturn, the risk of losing it all is real,” the organization said in a statement. “A diversification strategy can ensure balance and provide retirement planning peace of mind.”
However, the study found that three out of four investors don’t realize FIAs could help balance portfolios while also providing a steady income stream.
This news is especially alarming considering studies that project low returns for the long-term.
Jim Poolman, executive director of the IALC, suggests that participants should be encouraged to “research a wide variety of products to find the ones right for you in your journey to financial diversity. Look at products you may not have considered before, such as FIAs, which can help protect your nest egg from market downturns, help to guarantee income throughout your entire retirement, and offer growth without experiencing the downside of the market.”
The IALC’s survey found that 84% of respondents would be interested in a product that guarantees a steady income stream in retirement. Moreover, 48% said the thing they will miss most in retirement is a steady paycheck.
But like many annuities, FIAs can be complicated products for many participants. Common “myths” the study found around these products include the idea that FIAs are investment products, only retirees purchase FIAs, and FIA premiums are locked up and not accessible.
The IALC states, “FIAs are key to providing balance, protecting your nest egg from market downturns and providing a sustained, long-term income stream once you stop working. They are not for everyone but they are certainly worth researching to see if they would be beneficial to your portfolio.”