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The Time Is Here for Workplace Education on Life Insurance

The Millennials & Life Insurance Survey, recently released by Greenwald Research, found that the COVID-19 pandemic has spurred an interest in the purchase of life insurance among Millennials, Americans aged 23 to 38. A significant minority of this segment of the US population says they have purchased life insurance since the beginning of the pandemic or that they are planning to purchase coverage in the next twelve months. Although this study found a large majority of Millennials agreeing that people like them should have life insurance, many still do not have sufficient coverage, or any coverage at all. Premature death can have devastating financial impacts on the unprepared. But with COVID-19 as an almost daily reminder that death can occur at any age, the numbers show that despite this group’s positive outlook on life insurance, they are failing to act. One solution to this problem remains largely unexplored; workplace education can help fill the gaps in Millennials’ understanding of life insurance.

How Millennials View Life Insurance Today

Greenwald’s Millennial Life Insurance Survey confirms that many Millennials view life insurance policies as too expensive and possess a false sense of confidence regarding how much life insurance they need. While most somewhat agree they have a clear understanding of their coverage requirements, study data reveals Millennials aren’t taking the necessary steps to arrive at an answer.

Several inconsistencies exist in the modern Millennial’s perspective on life insurance, with their take on technology one of the most surprising. Most Millennials surveyed would prefer to gather information through a financial adviser before purchasing a policy, but not many do. Those who obtain life insurance outside of work make their purchase entirely online, but only a small minority indicates this as their preference. And while an overwhelming majority of Millennials say that they would use online tools to calculate coverage needs, again a small minority reported using such tools.

Inadequate planning leaves many Millennials underinsured. The Millennial Life Insurance Survey indicates that an overwhelming majority intend to purchase more life insurance and a substantial number have under $250K in coverage. Even more problematic, few participants believe their family would be okay financially if their spouse or they themselves were to die prematurely. The research also suggests that this failure to engage in the planning process extends beyond life insurance coverage; very few Millennials surveyed have coordinated a will, power of attorney, or transfer of asset agreement upon death.

Where Life Insurance Learning Can Take Place

As with any complex product, a lack of knowledge—enough to understand the purpose and value of life insurance—can become an obstacle to purchase. Education from employers holds the highest potential for addressing the inadequacy of life insurance coverage among Millennials. Because life insurance is so often acquired at work, the workplace can be a highly effective place for younger Americans to learn about the value of policies and explore their coverage options. Employers can offer life insurance as a voluntary benefit, spread awareness through general education or workplace wellness programs, and encourage policy planning and purchase.

Based on the opinions observed in this new study, there may be several beneficial lessons employees can learn about life insurance, including the real cost of coverage and the ease of purchasing a policy.

Life insurance is not expensive. Employers can communicate to their teams that coverage is a manageable expense. Employees interested in policies that aren’t offered through an employer can also easily find inexpensive alternatives outside of the workplace with individualized underwriting that often reduces cost for health applicants.
Simple online tools can calculate coverage needs. Employers can share resources for determining coverage goals and amounts or conduct training to demonstrate tool use and walk through life insurance products offered at the workplace.

Workplace wellness programs are great opportunities for life insurance education. Previous research from the Greenwald team, like the 2020 Workplace Wellness Survey, suggests health and well-being programs are often geared toward Millennials. They are frequently structured around major life events and challenging topics, such as debt management and financial security. Many Greenwald studies point to the birth of children and marriage as the two biggest drivers of interest in life insurance protection. And in the Millennial Life Insurance Survey, paying off a mortgage and helping with family debt are the most important reasons respondents give for having life insurance. The clear alignment of employer wellness programs and Millennial life insurance behaviors makes this group perhaps the most suitable target for life insurance education.

Finding ways to resolve the disconnect between consumer intentions and behaviors will help improve overall financial management for Millennials today. As businesses continue to adjust recruitment efforts, optimize internal processes, and retrofit their culture around remote or hybrid work during the pandemic, employers should examine their current policy offerings and consider educating teams more on the importance of life insurance.

Interested in learning more? Full findings from the Millennials & Life Insurance Survey are available for purchase along with Greenwald’s recent Rethinking Retirement Survey. To gain early access to future study results or talk more with our team about Millennial life insurance education, get in touch with Greenwald.

Supporting the Health & Financial Well-Being of America’s Unpaid Caregivers

Caregivers are the backbone of society, helping people grow, heal, and age with grace and dignity. While caregiving is a big business worth $30 billion in the U.S. alone according to one industry report,¹ unpaid caregiving is an even larger animal. The report Caregiving in the U.S. 2020—the result of a national study conducted by Greenwald Research on behalf of the National Alliance for Caregiving (NAC) and AARP—found that one in five Americans provide unpaid care to a family member, friend, or neighbor, with a total that has risen in the last five years from 43.5 million in 2015 to 53 million in 2020.² Estimates from 2017 place the economic value of that care at $470 billion.³

As the American population ages and more unpaid caregivers dedicate time to caring for loved ones, leaders in both the public and private sectors must find new opportunities to help them navigate the health and financial implications of their important role.

How to Know if You’re an Unpaid Caregiver

The CDC defines caregivers as people who provide ongoing assistance with everyday tasks on a daily or regular basis.⁴ Unlike paid caregivers, informal or unpaid caregivers are not required to hold specific certifications, take courses, or comply with government regulations related to care delivery.

Although they have more freedom and flexibility in where, when, and how they provide this assistance, taking on this large responsibility—often while working full-time—means many unpaid caregivers struggle with the physical, mental, financial, and professional costs associated with the logistics and experience of caring for older adults and people living with a health condition, illness, or injury. This is where healthcare organizations, financial services companies, and other businesses can offer support.

Every care plan looks different, but common unpaid caregiver responsibilities include:

Assisting with personal needs (bathing, dressing) or visiting and checking in
Performing household chores (cooking, cleaning, yard work) or running errands
Providing transportation or mobility aid (driving, helping in and out of beds and chairs)
Managing finances or arranging for various outside services and necessities
Speaking with healthcare providers or coordinating care and appointments
Monitoring vitals, evaluating condition, or administering medicines, pills, and injections
Managing equipment (hospital beds, wheelchairs, hearing aids, oxygen tanks, nebulizers)

If you perform any of these duties for another adult without pay, you may be one of the millions of unpaid caregivers in the U.S. today. If you don’t currently provide this level of care, chances are you will at some point in your lifetime, whether for a partner, family member, close friend, or neighbor.

Supporting Caregivers During COVID-19 & Beyond

Caregivers in the U.S. have always been in need of formal, organized support, but the global COVID-19 pandemic has brought this issue even further into the forefront for leaders in healthcare and other industries that affect the daily lives of unpaid caregivers.

Greenwald Research is proud to partner with a number of healthcare organizations, financial services companies, employers, and advocates looking for smarter, more streamlined ways of helping caregivers better manage health and financial wellness for themselves and others. Our research for NAC and AARP offers new insights on the impact unpaid caregiving has on physical health, emotional well-being, financial situation, family dynamics, workplace setting, and more in an attempt to understand the experiences of modern caregivers.

Examining these findings will help drive the conversation around how we, as co-workers and employers in an industry focused on risk and security, can develop innovative solutions to support the caregivers of today and tomorrow.

A Virtual Research Workshop on Caregiving

Greenwald is excited to share some of the data we’ve collected in this area during the workshop Caregiving with a COVID-19 Lens on Thursday, April 29th, 2021. Part of the Society of Insurance Research (SIR) Virtual Spring Research Workshops Summit, this panel will review our recent research and guide leaders from NAC, Voya, and SCAN Health Plan in a discussion on the future of caregiver support, moderated by Greenwald’s Chief Research Officer, Lisa Weber-Raley.

To experience this workshop or learn more about research on caregiving and other topics across the healthcare landscape, reach out to Greenwald Research.

We Need New Investment Portfolios and New Metrics to Adjust to the Low Interest Rate Environment

The low interest rate environment has created problems for those accumulating for retirement and in retirement. A significant allocation to fixed investments, which many use for stability, now contributes very little to return, driving down the potential for growth for the overall portfolio while also providing a less effective buffer against equity market loss.

Fortunately, there are solutions that have the potential for growth while protecting against a market drop, but these solutions add to the complexity of investment allocation decisions, and our current tools to measure risk tolerance don’t map to these new choices. In general, investment decisions require a more effective metric to help pre-retirees and retirees make better investment allocation decisions.

In this blog post, I will address the problem and the solution and provide a suggestion for the new metric.

Integrating the Psychology of Risk into the Investment Process

Investment risk tolerance discussions are done to understand how much risk investors should have in their portfolios so that allocations can be properly calibrated. The challenge is that reaction to risk is more complicated than many realize, and thought processes have significant consequences that are often not considered. There are several reasons why discussions of risk are often more complicated than they appear.

Lifetime Income Life Insurance: Opportunity for a Superior Life Insurance Solution

by Mathew Greenwald

Greenwald Research, working with actuary Chuck Preti of Life and Annuity Solutions, has identified a new, and we think, highly attractive life insurance concept that, to our knowledge, is not currently available. This new concept not only does a better job of meeting many people’s needs, it can also have significant market appeal. Further, besides providing a crucial death protection benefit in a highly efficient way, this concept can also provide an important component to retirement planning and financial security in retirement.

We surveyed 504 people ages 20-50 who have a spouse and/or child and personal income of at least $40,000 per year, starting by comparing the appeal of traditional term insurance with income term insurance. Traditional term insurance is very common in the marketplace, while income term insurance, which can be defined to provide income until a specified and pre-definable date, is available from only a few companies. (It is not the new concept we will soon describe.) We asked respondents how appealing they found an income term policy that paid an immediate death benefit of $25,000 and then $3,000 a month to the beneficiary for a set period, depending on the age of the insured. We also asked how appealing they found a traditional term insurance policy that paid a lump sum death benefit of $250,000. The cost of the income term and traditional term policies, according to an analysis by the actuarial firm Life and Annuity Solutions, is similar.

Our research showed that more people found income term to be appealing than found traditional term insurance. When compared directly, 37% preferred Income Term Life and 24% preferred Traditional Term Life. This survey demonstrated to us the appeal of life insurance which made monthly payments.

Then our survey asked what type of income term the respondents preferred:

A policy that would pay $2,000 a month from the day the insured dies to the point the insured would have reached 70, OR
A policy that would pay $2,000 a month from the day the insured dies to the time the beneficiary dies

Even though the description of the lifetime payment option specified that no payments would be made if the beneficiary died before the insured, there was a strong preference for the policy that made monthly payments for the life of the beneficiary. Indeed, 46% preferred that policy and only 29% preferred the policy that would pay monthly income until the insured would have reached age 70. I will call a policy which makes a small immediate death benefit and then makes payments for the life of the beneficiary Lifetime Income Life Insurance.

It is clear why lifetime income is preferable: it provides the most financial security to the beneficiary and is the most financially and psychologically satisfying. Furthermore, in many cases, this coverage can be less costly than a policy that just pays benefits for a period of time. I believe this type of policy, once offered, can be highly marketable. This is the new concept we consider so promising.

The advantages of Lifetime Income Life Insurance over traditional life insurance are:

It is easy to decide how much coverage to buy. The main purpose of life insurance is to provide enough to meet monthly income needs. But it is difficult to calculate exactly how much of a lump sum will be necessary for this, especially since some of this might depend on unpredictable investment returns on the lump sum. With Lifetime Income Life Insurance, the amount needed monthly can be directly purchased.
The coverage is always up to date. With life insurance that provides a lump sum, the amount necessary to meet monthly income needs at purchase is more than what is needed 10 or more years later. That means that after just a little while too much is being spent on premium if the coverage is adequate at time of purchase. With Lifetime Income Life Insurance, the amount of income replaced is always correct.
The proceeds cannot be over-spent or mis-invested.
The policy has enormous flexibility. Lifetime Income Life Insurance offers consumers the choice of designing a product that gives them options for the size of the immediate death benefit, whether the monthly payments are adjusted for inflation, changing the amount of the monthly payments after a certain age or other markers, and the possibility of a death benefit for the beneficiary. This flexibility makes customization of the policy much more feasible than with traditional life insurance, a feature that consumers value.

Lifetime Income Life Insurance can be used as a more effective pension maximization product. A person who is retiring with a pension benefit must choose payments just either single life benefits or joint and survivor benefits. The advantage of joint and survivor payments is clear, but that often requires a substantial drop in the amount of lifetime income the pension will provide. An actuarial analysis reveals that it would often be advantageous for a retiring worker, especially one in reasonable health, to take the single life coverage and buy lifetime income life insurance that would continue payments to the spouse at whatever level the pensioner decided was appropriate if the pensioner died first. While it is unclear how much traditional life insurance a person seeking pension maximization should get, with Lifetime Income Life Insurance, they can decide exactly how much income the survivor would need.

Due to breakthroughs in life insurance underwriting, there are ways of making Lifetime Income Life Insurance significantly better in many situations. Underwriting has become, in many circumstances, very quick and inexpensive. This makes it feasible to underwrite both the insured and the beneficiary, which can permit, in a number of cases, providing more coverage for the same premium. This can make the coverage much better in situations in which the beneficiary is older and/or has impaired health, (a scenario especially likely for men who tend to marry younger women.) This is especially true in circumstances in which the impaired person cannot work and is completely dependent upon the insured.

Consider the following situation: a 45-year-old woman who is working and supporting her 55-year-old husband who got sick and had to leave the workforce. Assuming the man is rated a “Table 8,” (an actuarial rating indicating a lower than average life expectancy) if she is in good health, she could get a Lifetime Income Life Insurance policy that paid her husband $46,027 a year for life for the cost of a traditional policy that paid a lump sum death benefit of just $100,000.[1] Which policy do you think would be better for a 55-year-old man: $100,000 or $46,027 a year for life?

If the woman is age 55 and the husband is age 65 and rated “Table 8,” the annual payout for life would be $82,214. There are many women who are married to men who are older and in poorer health than they are. The husband is often very dependent on the wife for needed income. Life insurance is essential. This policy provides it in a superior way.

Also, consider a young mother or father who just gave birth to a significantly impaired “special needs” child. The child will never be able to support himself or herself. The mother, for example, could have a life expectancy of 50 years. The child could have a life expectancy of 30 years. The child will need income for life if the parents die. But many special needs children would be unable to manage the money. A policy that provides Lifetime income life insurance is the perfect solution. It provides monthly income that would not have to be managed. Very importantly, it would provide lifetime income at a sufficient level for the child from day one at a much lower cost than traditional life insurance.

Use of Lifetime Income Life Insurance

We believe there are a number of potential applications of Lifetime Income Life Insurance. It is certainly superior, as indicated above, in many specific circumstances. It also may be effective in the direct marketing and voluntary markets. In the individual market, beyond the cases when it is clearly the superior choice, it will often, we believe, be effective, as the lead recommendation. However, we think it can also be helpful as a fall back recommendation if a prospect has trouble deciding how much coverage to get or balks at the cost of coverage.

Suggested Next Steps

Our research just covered the basic design of Lifetime Income Life Insurance. There is potential to make this solution even more appealing through features such as a death benefit for the beneficiary, return of premium, the guarantee of a certain level of payout, and transformation of the coverage to long term care insurance. Designing the most effective policy will require product development research. If you are interested in discussing product development efforts or want more information about the survey we conducted, contact us.

[1] Calculations made by the actuarial firm Life and Annuity Solutions.

Impacts of Working Remotely Due to the Pandemic

Insights from Greenwald Research’s Rethinking Retirement Study
AnnMarie Pino

Before the pandemic, just 9% of workers primarily worked from home. By the time Greenwald Research’s Rethinking Retirement Study was fielded in early December, this share jumped to 32%. For those who faced this significant shift in work environments caused by the COVID-19 pandemic, there are many questions on what the impacts are—both short- and long-term.

53% of workers age 55–69 report that since the pandemic begun, their employer has allowed for flexible work arrangements, likely born out of necessity due to local guidelines and mandates. Employees say the pandemic has changed how their employer conducts day-to-day business, with those now working from home more likely to say this has been impacted to a great extent (43% vs. 33% not working from home).

Job Satisfaction

Despite these major changes brought about by the pandemic, more than three-quarters of workers are satisfied with their job. Those whose job shifted to working from home are no different, with 77% reporting they are satisfied. However, more of those now working at home saw an increase in job satisfaction since the pandemic’s onset—34% are now more satisfied with their jobs compared to the 22% of workers who are not now working remotely.

Even if Zoom fatigue is real (75% of remote workers say they have at least a few virtual meetings a week), it seems that the move away from the office has boosted job satisfaction for many.

Retirement Timing

One of the biggest questions from this study is how the pandemic is impacting what retirement looks like. For current employees, 42% say the pandemic has not changed when they plan to retire. However, 32% of those who shifted to remote work say they are now planning to retire later than originally planned (vs. 24% of those who did not switch to working from home).

In addition, the motivations around the decision to delay retirement are different depending on if employees started working at home only after the pandemic began. For instance, the financial impact of the pandemic is the top reason those who did not transition to working from home say they will continue to work longer (41% vs. 27% working remotely). While these employees are planning to work longer out of financial necessity, those who did start working from home attributed this ability to work remotely as the top reason to delay retirement (29% vs. 11% of those not working remotely post-pandemic).

Going Forward

Satisfaction with how employers have handled the pandemic is high, but it is equally important for employers to consider how they will proceed as the world moves beyond widespread stay-at-home orders. Continued flexibility is key to ensure that these employees continue to remain satisfied but also to accommodate those who may not have enjoyed the change in work environments. One solution will not fit all, so continuing to adapt and create arrangements to best suit individual employees’ needs can help drive job satisfaction, leading to higher productivity and lower employee turnover.

Click here to learn more about Greenwald Research’s Rethinking Retirement Study or to purchase the full study results.

Inspired Localism: Wellness Programming that Engages the Community Beyond Corporate Walls

If you work in the healthcare world, “social determinants of health” (SDoH) is something you’re starting to hear everywhere. While it has long been a focus in public health, the healthcare industry and employers have been slower to make it one of their foci. Since half of Americans receive healthcare through their employer, this is a problem.

It has been easier for plan sponsors to focus on employees as individual actors, rather than thinking broadly about how employees are functioning overall with regard to the SDoH in their communities: economic stability, education, health and healthcare, neighborhood and built environment, and social and larger community context. In fact, most wellness programming and associated tools (i.e. fitness watches, reimbursements for gym use, and financial wellness seminars) are completely focused on changing an individual’s behavior notwithstanding the external forces beyond the company walls. But it hasn’t been working. The sick are sicker and healthcare prices continue to rise in part because we are not individual actors and health and wellbeing are much bigger than what happens within the company walls. If employers want to continue being the conduit to healthcare for most Americans, they need to understand how programming works both on the individual and how it fits into the local fabric of the community.

Wellness Programming Today

Large employers are expected to spend an average of $3.6 million on wellness programming for employees in 2019[1]. This includes everything from gym membership subsidies, to in-house seminars, to Fitbits. Nevertheless, the CDC says that 6 in 10 adults have a chronic disease and 4 in 10 have two or more chronic diseases[2]. This is not limited to the unemployed or underemployed. Our research of consumers with health insurance shows that at least half are overweight or obese, a condition linked with many chronic diseases[3].

Clearly the investment in wellness isn’t solving the problem on its own. In our conversations with healthcare consumers, we know that wellness programming doesn’t work for everyone. This is because most wellness programming is implemented on a company-wide scale, without taking into account the nuances of the members and communities that it serves. While some of the challenges cross cultures and people, that doesn’t mean that there is a blanket solution. Gym memberships and financial wellness classes alone will not change behavior if the employees are worried about where their next meal will come from, if they are in physical danger, or if they simply don’t understand the point of changing behavior. Wellness programming is currently focused on the individual or the company, not the broader context in which those individuals live – their community. There is opportunity for employers and their health partners to look beyond their walls, into the communities to which their employees belong.

Employers first need to cultivate a trust and consciousness with employees and the communities so that they understand their unique challenges and resources. Only then can wellness programming leverage this knowledge to actually change behavior. To do so, companies can partner with community leaders who can educate them about the particular challenges of the community and who can educate and encourage community members to make changes for the better. Thinking locally requires a decentralization of health and wellness thinking, but it will be far more powerful and effective than a one-size-fits-all healthcare approach.

Root Causes of Poor Health/Health Decision Making

What are the root causes of poor health and health decision-making and what can be done?

Financially stressed consumers lack the bandwidth needed to plan for and to live a healthy life because they are too consumed with the day-to-day struggles of making ends meet. Our annual survey of employed healthcare consumers[4] found that 1 in 3 financially stressed consumers put off medical treatments because of cost. Combined with consumer interviews that we’ve conducted on healthcare related issues, we know that when household finances are tight, consumers are not making good health decisions. Their priorities are first to ensure the basics (shelter, food, safety) and then worry about health. They prioritize convenient food over healthy food and ignore warning signs for mental illness. By providing employees a living wage and a good work/life balance, employers will see them dedicate more time and energy towards being healthy. They will take advantage of wellness programming more and become advocates of a healthy lifestyle that will have ripple effects across the community.
Beyond a living wage and a work/life balance, many people simply lack access to food and safe areas to exercise. Food deserts restrict the amount of healthy foods available for people, which can especially affect those with young dependents or those with chronic diseases that require a healthy diet to manage adverse symptoms. Diabetics, for instance, who do not eat regularly can suffer from a drop in blood sugar which can cause everything from fogginess to more complicated outcomes. For employers, this means disengaged employees who are not performing to their potential or worse, employees with very expensive medical trips to the ER. Employers are uniquely positioned to make the lives of their most challenged employees easier, not by offering gym classes or yoga afternoons, but by subsidizing healthy lunches or by offering a food pantry and meals on wheels for those in need.
Access to a trusted care provider – one that is both culturally and linguistically relevant to the patient – can mean the difference between whether people take part in preventative care, as well as in care plan and medication adherence. Access in this context goes beyond physical distance. The effectiveness of a doctor is in his or her ability to gain the trust of their patients and their community. Many organizations are now partnering with Uber, Lyft, or other ridesharing companies to provide increased ability to simply get to a doctor, but there is often a simple lack of available and trained medical professionals in the community who can gain their trust because they look like them and talk like them. Telemedicine is one solution, but only for those with access to the internet and who are willing to see a doctor this way. Another solution could come in the form of empowering trained nurses to help address community needs, but the feasibility of approach requires further research. Employers who find ways to partner with local organizations, hospitals, and healthcare professionals will see greater engagement from their employees in their own health.

What Can be Done?

Engagement of healthcare consumers requires us to scrap that one-size-fits-all approach of health initiatives today. It requires trust-building and engagement at the local level. Professor Raghuram Rajan, of The University of Chicago, calls the community “The Third Pillar,” and calls on us to practice “inspired localism,” where we engage with and energize communities to inspire real and lasting change. In this context, when community is engaged and energized, it will develop solutions to its healthcare problems.

Employers are often the biggest stakeholders in a community. They are dependent on the vitality and stability of the community in the same way that a community depends on them. Employers can take a good look at themselves and how well they are engaging with employees and their communities to empower them to take control of their healthcare and health expenses. To do so, they need an understanding of SDoH at each of their plants, offices, and other locations. Simply deploying libraries of information or wellness programming without understanding the root-level issues that might interfere with getting health and wellness mindshare is ineffective. For some companies, it might require a radical change of focus to recognize the value of potentially decentralizing some aspects of their benefits. Nevertheless, thinking this way will ensure that everyone will be better off.

Sources:

[1] National Business Group on Health/Fidelity
[2] CDC, https://www.cdc.gov/chronicdisease/resources/infographic/chronic-diseases.htm.
[3] Greenwald Research/EBRI, Consumer Engagement in Healthcare, Annual Survey. 2018 edition.
[4] Greenwald Research/EBRI, Consumer Engagement in Healthcare, Annual Survey. 2018 Edition.

Creating an Effective Retiree Portfolio

Money management in retirement presents a complicated challenge. Over what can be a 20- to 30- year time horizon or more, most retirees need a significant return on their investments in order to deal with the corrosive long-term impact of inflation, pay for unexpected expenses, and maintain their feeling of financial security. This is difficult at any time, but especially hard to achieve in the current low interest rate environment. There is one added difficulty that many retirees face: an increased concern about investment risk.

This sensitivity is not unfounded. Retirees become subject to sequence of return risk and have to make sure they don’t have to withdraw equities to pay for living costs in a down equity market. Feeling they can no longer earn money from work, many feel more vulnerable to a major market downturn. This feeling of vulnerability leaves many fearful of major investment loss.

Current Methods for Addressing Investment Risk

Most retirees and their financial advisors try to address these issues through the lens of diversification. They try to decide what proportion of their money to put in equities and what proportion to put in fixed investments. People have learned during their work lives that diversification works well and they think it can be extended into the retirement years. However, diversification requires time for the markets to recover. Time acts as a crucial protector. Workers can typically wait a long time without having to make withdrawals until the value of their equity investments returns to its former levels, but retirees do not have the time workers have. The stock market has lost at least half its real value (accounting for inflation) five times in the last 110 years, more specifically, once every 22 years. Sometimes it has recovered relatively quickly, sometimes it has not. How many retirees can withstand a 50% drop in equities that does not recover at least fairly quickly?

Some advisors use the “bucket strategy” to help their retired clients deal with investment risk. But with retirees’ greater sensitivity to risk, bucketing may not be sufficient to help retirees feel comfortable with a major loss of assets and, as people age and their life expectancy is significantly reduced, even their “long range” bucket may be too close to wait out a sustained down market. Our company’s research has found that as people age, their planning orientation gets significantly shorter range.

The Equity Allocation Dilemma

Here is the dilemma most retirees face: how much to allocate to equities. William Bengen, whose detailed analyses of withdrawal rates in retirement led to the famous 4% rule, stated that allocations of at least 50% to equities are imperative in retirement, while lower allocations are “counterproductive.” However, most retirees put less than 50% in equities. They think they are increasing their financial security by reducing exposure to equities, but they are not achieving this: many are robbing themselves of the ability to get the returns they need.

What about those who put half or more of their assets in equities? They face the risk of a major downturn sometime during the course of their retirement that could lead to a loss that could severely damage their financial security. The average age of retirement is now 63, with half of people retiring prior to that age. A husband and wife, both retiring at age 63, have a significant chance of having at least one of them remaining alive and needing income 30 years later. If the stock market has lost at least half its value five times in the last 110 years, what is the chance it will suffer that level of loss again within the next 30 years? Is that a chance this couple should take?

There is a clear solution to this dilemma: products that allow the significant investment in equities that most retirees require and still protects against an intolerable level of loss. There are three categories of products that are effective:

Downside protection products such as indexed variable annuities or non-annuity products that use options to protect against risk
Guaranteed lifetime income products that provide income no matter what the market does. The ability of those who own these products to continue to get income even in severely down markets allows them to invest more in equities in other parts of their portfolio and wait out a down market for an extended period of time
Other solutions, such as low volatility mutual funds, dynamic asset allocation, and non-correlated assets that can also work. These do not provide the level of assuredness that the others do, but they are certainly worthwhile solutions for retirees.

There is another advantage of these solutions that should not be underestimated. They provide retirees with peace of mind. Anxiety has a cost and retirees who are just depending on diversifying stocks and bonds often worry about the very real possibility of an unsustainable loss. With these solutions, they can be free of that worry. When I have discussed these concepts with financial advisors, I often hear the objection that most people will be better off if they do not use these solutions because of the cost of the guarantees or the lower performance of solutions that reduce volatility. To address that objection, I would like to discuss an informal survey my firm did, based on an airline analogy. (The analogy was suggested to me by Eric Henderson from Nationwide. I made some changes to the analogy, so any defects are certainly mine.)

An Airline Analogy

In the survey, we described a new hypothetical airline. The airline, we said, found that all other airlines invested a lot of money in safety programs, including parts replacement and checking programs, that contributed very little to overall safety. Indeed, their analysis concluded that they could spend considerably less money on safety programs and still have planes that would land safely 99.6% of the time. In other words, their competitors were spending a lot of money that only made a difference in four tenths of one percent of the flights. They decided to compete on price by not taking the safety steps that were deemed least effective. When we asked respondents if they would take a flight with this airline if it landed safely 99.6% of the time, a third said they would do it for substantial savings.

Our next question involved this airline offering the following deal: If you paid for two roundtrips per year for the ten years before retirement, the airline would let you fly for free for two roundtrips per year for ten years after you retired. The benefits of that are clear. For many retirees, the ability to fly for free for ten years would make a major difference. The “fly” in the ointment is that the risk of being involved in a plane crash for those 40 flights would be at 16%. How much of a discount would you need to take a 16% chance of being in an airplane that crash-landed? None of the people I interviewed would take the deal.

The key point I am trying to make is that when people embark on an investment strategy for retirement, they are accepting a level of risk for an extended period of time. The risk of a major downturn may be small this year, but what about once over the next 30 years. One could try to time the market, but is it wise to count on that?

In the airline analogy described above, 84% of the people would be better off if they took the deal the airline offered. But all considered it unwise. So, while advisors are right that most people will be better off without protecting against downside risk, the most important thing is making sure it does not happen to you.

When financial advisors state they do not want their clients to pay for protection that most will not need, they are missing the point that most retirees would be willing to pay that cost for the protection. Further, even if the stock market does not go down significantly, retirees know that it’s a possibility, which causes a certain level of anxiety. Having downside protection or guaranteed lifetime income not only provides real protection, it also provides a feeling of security that has a value that should not be underestimated. There is one more point: in many cases using these products will not cost the retiree anything, even though the principal protection products, the guaranteed lifetime income products or they dynamic asset allocation products do have a cost. That is because, with these solutions, many retirees can actually take more equity risk with other parts of the portfolio and in good markets, with this extra exposure to equities, their additional gains can more than pay for those product costs.

Conclusion: Develop a New Retiree Portfolio

Financial services companies and advisors have done a great job of teaching accumulators about the value of diversification. In support, they have created metrics for how to allocate between stocks and bonds and how to change this allocation as retirement approaches. They have also developed tools, such as the investment risk tolerance questionnaire, to help people decide how much to allocate to equities and to fixed income instruments.

I think the next task is to provide this type of support for the effective retirement portfolio, which is extended to include downside protection, guaranteed lifetime income solutions, and other investment strategies that protect against excessive investment loss while providing enough of an allocation to equities to allow for the opportunity for a needed return.

This means new metrics, new tools, and new educational programs. For the current and future generations of retirees who have to depend much more on their own assets for financial security, and less on defined benefit plan income, these new portfolios will make a crucial difference.

Surveying Hard-to-Reach Consumers? No problem.

With everyone attached to their smartphones these days and accustomed to sharing so much information, it seems like it should be easier and cheaper than ever to reach your intended survey population. That isn’t always the case. Some populations, like immigrants, marginal groups, older consumers, consumer experts and those in more rural locations, are especially hard to reach.

Greenwald Research has some answers about surveying hard-to-reach consumer populations:

Start With What You Have

Leverage your own lists of consumers who are customers, employees, and potential customers. Although you’ll need to refresh these lists regularly, this is one of the best places to start for sample. Ask your research vendor with an in-house programming team for tips and tricks on how to keep these lists clean and ready to use.

You can also build on your current lists by creating landing page on your social media sites or your website. Offer up a “call-to-action” geared towards your target audience such as an information sheet, a free e-book, or a coupon, which you can exchange for an email address. Not only have you found someone interested in your survey topic, but you have increased the chances of having them participate in your survey by virtue of them having recently given you their email address.

Leverage Trusted Sources

Think creatively about other ways to learn about your target group. Who do they trust? Especially for populations that are more hesitant to provide personal information, like immigrants, finding one of their trusted resources can do two things for your research.

First, qualitative interviews can inform your online questionnaire. Conducting one-one-one interviews with trusted resources can help you know what to ask and how to ask it for maximum effectiveness.

Second, it can lead you to your target audience. Trusted resources can introduce you to members of the population you want to speak to the most, as well as other trusted resources for that community. This approach, known as snowball sampling, will ensure that you are getting quality respondents for your research project.

Get Help with Consumer Research Panels

Panel providers are one of the most common places to go for consumer sample, but you have to be careful. In our online studies, Greenwald & Associates has found that there is an ever-increasing number of respondents “gaming the system” by logging on multiple times or misrepresenting who they are.

If you are going to use an online panel provider, be sure that you are managing them and screening your respondents vigilantly. For hard-to-reach populations, find a specialty panel provider and/or enlist the help of a market research firm to write the screener and manage the screening process. This will help you avoid a situation of “Garbage in. Garbage out.”

Go Retro

Some respondent groups just like to open a piece of mail or answer questions via phone, especially older generations. If you are trying to survey respondents who are 60+ years old, consider a mail or phone survey.

Knowing your audience and how to best reach them is an art and a science. Start gathering your list and thinking through your research mode early. Or, if you are in a rush, reach out to a market research firm who has more resources than you might internally.

Dynamic Segmentation: Maximizing Opportunities as A Black Swan Event Unfolds

One of the most useful tools that marketers, product developers, and thought leaders have is the ability to understand the composition of the markets and distributors they serve and be able to target strategies, products, and communications to the most responsive and valuable segments. Today’s investment climate is so complex and difficult and has changed so significantly in such a short period of time, that we believe that an enhancement to that venerable tool is now required of companies offering investments, including annuities. We call it “dynamic segmentation,” which is the tracking of segments over time and identifying newly developed segments: the re-segmentation of the market.

This need is caused by the intense nature of the change we are undergoing, in both the investment climate and, probably, investor psychology. Many investors and advisors are anxious and confused. They are eager for guidance, education and advice from investment and insurance companies. This is a good time to act. But, especially in this time of heightened concern, it is important to communicate effectively.

Twin Crises

We are now confronting, as you know, two related crises at the same time: a health crisis and an economic crisis. To a significant extent, these twin crises have been about risk. The media have besieged us all with information on the risk of becoming infected, the risk of becoming ill, the risk of dying, the risk of a Great Depression, the odds of the stock market reaching specific levels.

Also, the stock market has experienced its steepest decline ever. My company completed a survey of consumers and advisors one day before the first major coronavirus-related stock market decline. Very few consumers, or even advisors, saw this stock market decline coming, even though cases of the novel coronavirus had been increasing in China for a while. The fact that this change was so unexpected magnified the impact and reduced people’s sense of being able to prepare in advance. This steep decline in the market certainly affected people’s feelings about stock market risk, while the health crisis probably changed views toward risk in general and investment risk in particular.

Issues Affecting Investor and Advisor Decision-Making

Investors and advisors are reacting to three related issues, which are ultimately causing them to re-evaluate their investment strategies. The first is the very feeling and assessment of risk and tolerance for risk. As the risk of death goes up, as the risk of job loss, a Great Depression and food shortages rise, the way people assess the value of taking investment risk can also change. The strong focus on risk and the range and severity of the risks we face are quite likely to affect tolerance for investment risk, beliefs about risk, and responsiveness to solutions.

The second issue is the low interest rate environment. Importantly, this is all occurring in an extremely low interest rate environment. In the past, there was often a reasonable place for investors to park money that was safe but still provided a reasonable return. This is certainly less true now. This makes dealing with investment risk more complex.

The third issue is the equity market climate and outlook. Before these crises financial advisors tended to take one of three approaches:

Diversify portfolios and ask clients to tolerate volatility in the expectations of higher returns over the long term
Use hedging, uncorrelated assets and other tactics to provide a “smooth ride” with less volatility, even at the expected cost of lower long-range gains
Use guarantees, such as annuities with downside protection and (for pre-retirees and retirees) guaranteed lifetime income to increase certainty and provide greater protection against loss.

During the over decade long bull run the first strategy worked very well. But it is not working well now. This will likely lead many advisors to consider new strategies and be receptive to new approaches. They may well fall into different and, perhaps, new segments.

Why is Dynamic Segmentation Important Right Now?

The way investors and advisors are segmented, and the very composition of the segments has likely changed. If you want to effectively identify and understand key markets, we submit that you should not depend on former segmentation models.

Communicators are most effective if they understand the viewpoints, concerns, beliefs, and attitudes of the people they are communicating to and tailor messages to specific segments. A good marketing or thought leadership effort will be pertinent to all, but it will be most effective with a specific group and companies should be very tactical in selecting which groups to target.

Companies that conduct new segmentation studies will identify the characteristics of investors, and advisors, who present the highest potential. Importantly, they will have insights on how to approach key segments and what proof points and types of support will be most meaningful.

It is obvious that the twin crises are far from over and that the range of possible outcomes is extremely wide. During the period ahead investor and advisor views will be further impacted. Indeed, new segments may emerge as investors and advisors react differently to these further changes. Successful companies will be cognizant of the degree of change and implement a new segmentation study when the level of change demands it, which unfortunately may be in a year or before. In this climate, segmentation must become dynamic.