MASTERCLASS: Retirement Income - November 2019

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  • 46 mins 57 secs
In this Retirement Income Masterclass, we cover the state of regulation, considerations for plan sponsors, and much more. Panelists give a broad overview of retirement income, address various misperceptions, and discuss inclusive planning for different clients.

The three expert panelists are:

  • Roberta Rafaloff, Vice President of Institutional Income Annuities at MetLife
  • Eric Kaplan, Head of Target Date & 529 Product at Fidelity Investments
  • Tracy Fraser, Vice President of Business Development and Global Financial Institutions Group at Transamerica

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MASTERCLASS: Retirement Income - November 2019

Jenna Dagenhart: Welcome to Asset TV. This is your retirement income masterclass. We'll start with a broad overview of this important topic, then dive into more details, covering everything from the state of regulation to plan sponsors to inclusive planning for different clients.

I'm joined now by your expert panelists, Roberta Rafaloff, Vice President of Institutional Income Annuities at MetLife; Eric Kaplan, Head of Target Date & 529 Product at Fidelity Investments; and, Tracy Fraser, Vice President of Business Development and Global Financial Institutions Group at Transamerica.

Well, thank you so much for joining me.

Eric Kaplan: Thanks for having us.

Tracy Fraser: Thank you.

Roberta Rafaloff: Thank you for having us.

Jenna Dagenhart: So, I want to start off with a broad definition of what is retirement income, because it means a lot of different things to a lot of different people but it's part of what makes this topic so unique. Roberta you're right here, I will kick things off with you, why don't you define retirement income for us?

Roberta Rafaloff: Sure. An income annuity, which is what we're going to talk about, really is a very simple concept. And what it does is it allows a retiree to take the assets that they've worked so hard and so long to accumulate while working and turn those assets into a guaranteed stream of income that they cannot outlive. And we at MetLife really believe that is a very important tool to provide to retirees. In fact, a study that we released earlier this year, the MetLife Employee Benefit Trend Study, shows that one of the top five concerns people have with regards to retirement is running out of money. So, this is a very important thing for retirees to be given access to, so that they can take those assets and make sure that they don't outlive them.

Jenna Dagenhart: Yeah, I like how you put that, "A stream of income that they cannot outlive." Is there anything you'd like to add, Tracy, on annuities?

Tracy Fraser: So far, excellent. I just want to add that turning your assets into an income that you can't outlive, very important. But it also needs to be a plan that will ebb and flow and change as retirees go on the journey of retirement, it's not just a point in time. It helps if there's just a very defined plan as to how they will take that income. So, retirement income we see as being a very broad definition of how to create that journey for the retiree.

Jenna Dagenhart: And Eric, do you want to give us an overview of sorts, of the different behaviors and engagement levels that you've seen with different groups?

Eric Kaplan: Absolutely. So, engagement is a really important topic that we really want to pay attention to as people are approaching retirement. And I think it varies by different attributes that people have, so by age, income level, savings level. But really when you think about engagement, it's really meeting people where they're at in the life, whether that's by mail, phone, in person. Those are all really strong engagement levels. But when it comes to saving, and specifically saving for retirement, we found that actually the best opportunity is to work and partner with plan sponsors and advisors using opportunities like a QDIA [qualified default investment alternative], to really get people enrolled early, saving early, auto-escalation, so they can improve their saving level. So, that when they reach retirement, they're actually in a good place to actually have a successful retirement income experience, they can preserve their quality of life in retirement.

And really at that point, as well, it's also another really good opportunity at retirement to re-engage with these participants, and the plan sponsors associated with them, to come up with a plan.

Jenna Dagenhart: Yeah, you've been through this a little bit with the plan sponsors, but any secrets to success that you've encountered along the way?

Eric Kaplan: Yeah, so as we think about working with plan sponsors, some of the best opportunities are really to understand what their needs are, it always comes back to what the client is looking for. When it comes to plan sponsors, it's what are their concerns as they're looking to provide opportunities for success for plan participants in their plan. And that cuts across the whole spectrum, whether it's providing guaranteed income, or providing asset allocation solutions to help meet a good, balanced approach for retirement for their participants.

Jenna Dagenhart: So, always putting the client first?

Eric Kaplan: Yes, absolutely.

Jenna Dagenhart: Great. I want to pivot now a little bit into misperceptions that face retirement income, because just as there are many definitions of retirement income, there are also many misperceptions. I'll start off with you Tracy, do you want to touch on some of the misperceptions that you've seen along the way?

Tracy Fraser: Sure. So, of course we're talking about annuities. A lot of the misperceptions have to do with the beginnings of annuities, thinking that they're rigid or high cost or that you lose control of the assets. And annuities, the whole product line has evolved so much over time and providing so much flexibility for advisors to really help clients create the exact income that they need, and the flexibility built into it that they need and desire. It's just there are so many different options and different types of annuities to take a look at too, so you can have the flexibility built into it, you can have features and benefits and solutions and just liquidity available. There's so much that the annuity can offer so that it fits the client exactly as how they need it.

Jenna Dagenhart: There's an annuity for everything?

Tracy Fraser: There is. There is.

Jenna Dagenhart: Great. And Roberta, anything you'd like to add maybe about misperceptions on liquidity or cost.

Roberta Rafaloff: I would say that what we hear a lot is defined contribution plan participants don't want annuities, they're not looking for them. And actually, the Employee Benefit Research Institute (EBRI) also did a retirement confidence survey earlier this year. What came out of that is that three out of four participants actually welcome the opportunity or are looking for retirement income solutions. So, that idea that people don't want annuities, or aren't looking for them, we really think that that's a myth.

The other thing that people say is, "Annuities are bad investments when you compare them to other investment products." I would actually say that annuities are not investments and they shouldn't be compared to investments. Annuities provide a secure level of income. They are an insurance product. They provide predictable income that you can't outlive. They insure your retirement income.

Jenna Dagenhart: So, not an investment, an insurance product?

Roberta Rafaloff: Exactly. Exactly.

Eric Kaplan: Maybe just to add on to that, we hear a lot out there in the marketplace that the scariest day of a person's life is the day that they retire. And we have a lot of challenges. I think as an industry, if that's true, then maybe we're definitely falling short of what we're trying to aspire to for people as they're accumulating their assets. But really, for us at least, the scariest day for a person really should be the day they run out of money, right? So as we think about helping them live in retirement, that's really what we should be focused on, is how do we ensure that they can have the quality of life that they're looking for and that all of that savings level that they've worked so hard to accumulate, can provide for them in retirement.

Tracy Fraser: If advisors would just ask their clients, "If one of their biggest concerns is running out of money, how would they feel if a portion of their assets were able to provide them with guaranteed lifetime income? Something similar to Social Security or if we had defined pension plans, which a lot of Americans don't have access to." And I think if you propose the question to the client and let them determine that, "Yes, that is important to me," then it allows the advisor to freely talk about a product that's available to them.

Roberta Rafaloff: I think another really important thing too is the words you used, "A portion of your assets." One of the things we talk about all the time is, annuitization doesn't have to be all of the assets that you've accumulated. It should be whatever you need to create the guaranteed income stream that's most applicable for you and your needs. So, a portion is really... it's critical. I think that's almost another misperception like you said before.

Jenna Dagenhart: It has to be all or nothing.

Roberta Rafaloff: It has to be all or nothing. And it really doesn't. Right.

Jenna Dagenhart: Yeah, and I think what you were saying Tracy ties into your point too about a lot of people maybe don't know they want annuities.

Roberta Rafaloff: Right.

Jenna Dagenhart: They say I don't want annuities but maybe they really do.

Roberta Rafaloff: Right. They don't understand what it really means, right?

Tracy Fraser: They're definitely not going to come in and ask for an annuity.

Roberta Rafaloff: Right.

Tracy Fraser: But if they could ask for the confidence to know that a check will come to them on a monthly basis and it's going to cover the essential expenses that the advisor and the client have identified together. And that they don't have to worry about that, and then their children don't have to worry about it, or their beneficiaries don't have to worry about it, and it takes care of the client over time.

Jenna Dagenhart: Yeah, and anything you'd like to add in terms of what you're hearing from clients, misperceptions that clients might have, Eric?

Eric Kaplan: Yeah, I think there's a lot of misperceptions out there from clients in general about the benefits and drawbacks, the trade-offs. I think generally that point we were just talking about before, about having to actually lock up certain percentage of your money, it disappears from your account, I think that actually scares people. They don't understand that you actually got something for that money when you actually purchase an annuity. So, if you're taking a portion of your assets, purchasing that, you immediately see a drop in your asset value of your savings. I think that's really important, as I was talking about before, about trying to get better messaging out there to explain the value of these products to an investor. It's things like that, that generally are headwinds to successful implementation.

Jenna Dagenhart: Yeah, you touched on better messaging. Are there any other ways that you think some of these misperceptions could be reversed? Maybe more education? What are your thoughts?

Roberta Rafaloff: From a plan perspective, education is critical, and we really need to do a better job, as I mentioned before, on educating people about what to do with the assets that they've saved. People just don't understand decumulation, right? They don't understand how they're going to spend those assets, what their expenses are. And, if we don't provide the right level of education, and really give them tools that are going to help them understand what risks they face in retirement, and how to make sure that they have the assets, we're really doing a disservice to our participants.

A couple of things you can think about, so from a longevity perspective, we talk about longevity. Do people really understand what that means? So, how long do you think you're going to live and then how long, if you think you're going to live that long, do you have enough assets to cover you during that time? Another thing when it comes to education is making it very broad based. When you're talking about a defined contribution plan participant, helping them understand longevity, how long you're going to live, because for most people that's not a concept that they really understand.

Jenna Dagenhart: People don't necessarily think, "Longevity, of course."

Roberta Rafaloff: Exactly. Exactly. And sometimes they don't want to think about how long they're going to live, but it really is a very important concept. Then, let's give them the tools to help them understand things like pros and cons of taking a lump sum, pros and cons of taking Social Security at different ages. So really making a very broad-based educational program that really will help people understand a wide variety of risks that they're going to face and how their income needs, to Tracy's point before, might change over time and how they can adapt to that.

Jenna Dagenhart: Because change is expected. Tracy, is there anything you'd like to add in terms of product allocation?

Tracy Fraser: Sure. Advisors have done a really good job with helping our clients, or their clients, accumulate assets. I think they know the breadth of products available to them, it's the education, like you were saying, about decumulation, and how do you guide a client through that process and identify what needs there are. And that's where, we feel, that you move a lot from asset allocation to product allocation and you really need to look at which products suit a retirement need best. And if it's income, an annuity should definitely be considered. If you still have portions for asset growth, and like I said, advisors have done a really good job with that over time. So, looking at product allocation and just expanding what a client has access to is really important when you enter that phase of decumulation.

Jenna Dagenhart: And also honing in on the specific products too?

Tracy Fraser: Yes. Ideally the annuity, as we have mentioned, can really fit that need for the guaranteed retirement income, but it also starts with budgeting. So, clients have to be really willing to put on paper what their essential needs are and what their wish list is. And if the advisor can then guarantee that their essential needs are covered, it gives them the peace of mind to go through that retirement journey.

Jenna Dagenhart: Moving on to challenges. I think Eric you mentioned this a little bit, but some people are waiting until they turn 70 to take out some of that money that they've saved, and worked so hard to save, but they're afraid. What are some of the challenges to taking out that money?

Eric Kaplan: Yeah, there's a number of challenges and I think just talking about... Going back to Tracy's point here about budgeting for retirement, really understanding... I think there's three points that we want to make sure that we understand really well about participants as they enter retirement, that they need help and they need help with budgeting, they need help because they want to preserve that standard of living in retirement, and then to Roberta's point, they're really concerned about running out of money, right? So, budgeting across the board, I think is going to be really valuable and we have to think about this amongst four key risk factors as you look across retirement income. Longevity, as you both have mentioned here, is critically important, so how do you make sure that savers don't run out of money too soon.

But also, there's a really important point about investments as well. They're still going to have this chunk of money and they have to figure out, even if they annuitize portion of it, what are they going to do with the balance of it? Large drawdowns in the market can be pretty detrimental to the ability to actually have a prolonged retirement income experience. Similarly, things like inflation can overwhelm your savings. So, you want to think about asset allocation, and it all gets back to having the appropriate diversification, particularly age-appropriate diversification.

Liquidity is also critically important, particularly for a certain subset of the population, so as they think about the options available to them, having too much into an annuity product or other alternative products that may lock up your assets. If you have a liquidity event that you need, a life event, that you need access to your money, you always want to be mindful of those opportunities.

Lastly, I think something that doesn't get talked about enough is underutilization risk, or the risk that you're so concerned... As you talked about, people are waiting till they're 70. People are so concerned about outliving their assets that at many times they're actually too scared to actually withdraw any assets until they're forced to by the government, so we're seeing this. And so, I think as industry we want to make sure that we give people the confidence to spend money that they saved in retirement. I think part of that could be annuitization, part of that is just making sure we give them a good budget, give them the confidence that they can spend this money, to understand how that's going to last throughout their lifetime.

Jenna Dagenhart: And how can advisors help clients with these conversations?

Tracy Fraser: It really starts with asking what's important to the client. We know the statistics. We know what's most important to them, some will say leaving a legacy, some will say not outliving my assets or not outliving my income. But really getting them to define what does your retirement look like, where do you want to be, where do you want to go, what do you want to do and making sure that we help develop that journey for them and utilize the appropriate products to help get them there.

Having a guaranteed income stream through an annuity will give the confidence that the bills that they have are covered. And, as you were just talking about, making sure they've got liquidity so that the unforeseen needs are also covered and readily available. But then let them live. Help them show how to enjoy the retirement. You've worked really hard for it, so it's time to get the retirement you deserve and the one that you want. But it starts with the conversation and getting the client to really open up about what they want to do and where they want to see their retirement going.

Jenna Dagenhart: Certainly. Anything you would like to add to that, Eric?

Eric Kaplan: No, I'd say we think about it across the board as well. It gets back to the point we made previously about engagement and where are those best opportunities to engage participants to really think about planning for the future, have a good understanding about what their retirement date is going to be. Any opportunity to save early really dramatically improves outcomes for people as they're entering retirement.

Jenna Dagenhart: And Roberta, anything you would like to add here in terms of what challenges that plan sponsors are facing to adding these retirement solutions?

Roberta Rafaloff: Yeah, right now the biggest challenge plan sponsors face are regulatory barriers. The good news is Washington is acting on those concerns with two bills, basically, the Secure [Act] and RESA, the Retirement Enhancement Savings Act. We believe that once those bills are passed, we will see more plan sponsors start to offer income annuity solutions to their plan participants.

Jenna Dagenhart: Yeah, a bit of a safe harbor, you think?

Roberta Rafaloff: Yes.  So, these two bills really, in our opinion, have two things that are really going to help move along annuities in defined contribution plans. The first will be the safe harbor as you mentioned. So, plan sponsors are looking for what they view as a workable safe harbor for when they select an insurer to be their annuity provider inside of their plan. And they've told us time and time again that they need that safe harbor in order to implement income annuities inside their plan. We believe that that will be a very big milestone and we're really looking forward to that.

The second part of these two bills that I think is really important from a participant perspective is called lifetime income disclosure. And what that will do is it will require plans now on the annual statement -- everybody who's in a 401(k) plan receives an annual statement that shows how much they've accumulated so far -- and it will require that statement to take the lump sum that they've accumulated and translate that into a guaranteed income stream.

And we believe that that will do two things. First of all, it will reframe the 401(k) plan so that now it's not just an accumulation vehicle, it really is a retirement income vehicle, so that's one important part of it. The other piece that we think is really also very important is, when people start to see how much income their savings are actually going to generate, they're going to have to save more and they're going to want to save more. So really believe those are two very important outcomes from a participant's point of view, with those two pieces of legislation.

Jenna Dagenhart: So, not only something that would maybe incentivize them to start to move in this direction, but also a motivator?

Roberta Rafaloff: Absolutely. Absolutely. We're excited about it.

Tracy Fraser: It's also going to help the income conversation in general.

Roberta Rafaloff: It will.

Tracy Fraser: Because if plan participants become more aware of what's being provided for within their 401(k) plan or whatever they're investing in, it will be easier for them to then have that dialogue with their advisor saying, "This is what my statement is showing. This is the income that I'm guaranteed. It's a little shy of what I thought it was going to be." So, if they're young enough, like you said, maybe they can save a little more. If they're closer to retirement maybe you can look at additional assets they have saved elsewhere, to replicate that same guaranteed income that they're looking at, that they're seeing on their statement. And so, it should help with the overall decumulation conversation that we've been talking about.

Eric Kaplan: Yeah, completely agree with both points here. I think engagement also will absolutely rise. I think you will see savings behavior change.

Jenna Dagenhart: Yeah, and a change in attitude, perhaps, as well?

Eric Kaplan: Absolutely. Absolutely. I think that's been some of the challenges here. We've talked a little bit about the complexity of some of these products that we're looking to deliver. If you could break it down to, "You're going to get $600 a month or you're going to get $2000 a month." People can understand what that means relative to their current lifestyle and whether that works for them or doesn't work for them. But either way they're going to learn something new and that will hopefully change behaviors.

Roberta Rafaloff: I think from an education standpoint that really helps promote the whole concept of education, because people today look at their 401(k) statements and it really is just a number and it's this lump sum. That lump sum means different things to different people. And unless you understand what that means in terms of income, it's really falling short. I think having that requirement on a statement will really bring defined contribution plans to where they need to be today.

Jenna Dagenhart: They might think, "Oh, this lump sum will turn into five million dollars." But then it shows them, "No, only 600 a month."

Roberta Rafaloff: Exactly. Exactly.

Tracy Fraser: "It's a little more than my current paycheck. Or less."

Roberta Rafaloff: Little less.

Jenna Dagenhart: And demystifying the process.

Tracy Fraser: Right.

Roberta Rafaloff: Right.

Jenna Dagenhart: Great. I'd also like to talk a little bit about how simplicity of plan design can help.

Roberta Rafaloff: Sure. So, we look simplicity in three ways. If you look at it from the plan sponsor perspective, plan sponsors along with their record keepers have really done a great job getting people to accumulate, to save inside of their defined contribution plan. Now what we have to do, is start that decumulation phase as we've been talking about. But it needs to be simple. It needs to be simple for the plan sponsor to adopt -- and adding an annuity to their plan really is not that complicated. Yes, they'll have to amend their plan and follow all the steps that go along with amending a plan, but it's not a difficult thing for a plan sponsor to do. From a record keeping perspective, if you have an income annuity, there aren't those expenses builds between the record keeper and the insurer. It's a very simple product for the plan, as a whole, to implement.

From a participant perspective, an income annuity really is, as I've said before, a very simple concept to understand. You give the insurance company a certain amount of money and they're going to pay you an income stream for as long as you live. So those two constituents, very simple, very easy to put inside the plan.

The third thing I'd like to talk about is... We like to call a set-it-and-forget-it mentality or attitude. Think about target-date funds and how popular they've become over the last decade or so. If you think about a target-date fund, it really is this set-it-or-forget-it. My money goes into the target-date fund, the assets are managed professionally, the glide path in terms of how much should be in fixed income versus equities are managed by professionals. I don't have to worry about it, somebody else is doing it for me. So why wouldn't we take that same idea and apply it to retirement income? If you buy an income annuity, some portion of your assets go to the income annuity and you know every single month you're going to get that paycheck, it's going to hit your account, you're going to have your income that you can spend. So, again, a set-it-and-forget-it point of view.

Jenna Dagenhart: Building off of that, how do you think the industry could change this mentality and make it more similar to target-date funds, set-it-and-forget-it?

Eric Kaplan: Yeah, so I'm going to take that one. I think it's going to be tricky. To be honest, I think it's going to be tricky. I think some of the challenges that are associated with that are, there's multiple stakeholders on this value chain, right? You have first the plan sponsors and then the participants. We have had annuities in plan previously. Unfortunately, when they add them into plan we haven't seen a tremendous uptake from participants. I think some of that are the legacy challenges that we talked about here. There's not been a lot of education and guidance for those participants as they look to scan across for the options that they have available to them. I think certainly some of the regulation changes that potentially could be implemented, would help that experience. 

Jenna Dagenhart: Before we move on Eric, do you think we're seeing a change in attitude and preferences when it comes to plan sponsors?

Eric Kaplan: I think we are. If you look back five or ten years ago, we really saw that generally the roadmap was participants saved through accumulation in their plan, they retired, and they rolled over into a retail experience. But more and more we're seeing the preferences for plan sponsors are for the participants to stay in plan. We see a majority of plan sponsors actually are interested in their participants utilizing the retirement savings plan as a source of income in retirement. As we think through that change in preference from the plan sponsors, I think we also, as an industry, need to think about how do we support that experience, whether it's the right products, the right education, certainly the right guidance and tools and ultimately an overarching experience that we can provide to plan participants to really help them have a successful outcome in retirement.

Jenna Dagenhart: I want to move on now into best practices and inclusive planning. We've touched a little bit on how advisors can be approaching these conversations, but I want to take it a step further and elaborate on some of these challenges that we're seeing in the retirement income space.

Tracy Fraser: Well, definitely with respect to inclusion, I think of that in a very broad term. I think advisors need to do more education and more conversation with women, whether it's a spouse or women business owners. Women are controlling a lot of the assets, are making a lot of the decisions and have a lot of the small businesses out there. It's very important that advisors be very inclusive in the education they're providing to the entire family. So, the husband and wife that they may be working with, or individuals and even expanding down to the next generation of beneficiaries. The more that the advisor can educate both the husband and wife on the plan that's been put in place, the more secure that spouse or that couple will feel in terms of if something were to happen to one or the other. And then obviously beneficiaries are going to feel better knowing that their parents are taken care of, or that they don't have to worry about things.

For example, let’s look at healthcare cost. Besides outliving income, healthcare costs are a huge concern of retirees today. So, you're finding a lot of children taking care of their parents as healthcare costs are going up or perhaps, they just need assistance in that area. So, providing income or guaranteed income or access to products that will help cover healthcare costs is another avenue in terms of the all-inclusive planning looking at the total family and the total picture of who's going to be a caregiver and how their parents are going to be take of.

The conversations need to go broader. They need to more about accumulation and decumulation. It needs to be about the total picture, the holistic conversation.

Jenna Dagenhart: And we'll talk little bit more about healthcare costs in a moment. But building off of that, what are some of the unique challenges that you think women are facing?

Tracy Fraser: I think we find the conversations are more often geared towards men. But women need also stand up and just ask the questions and be part of the conversation with their advisors, and really find how they will be better prepared and better covered and feel more secure in their own retirement. We tend to live longer and yet perhaps aren't making as much or don't have the opportunity to put as much aside into our own 401(k) plan and things like that. So, there needs to be even more attention paid to that in terms of making sure that women are taken care of in terms of their retirement income needs too. Especially if they're husband were to predecease them or whatever they may need.

Jenna Dagenhart: And making sure that they were involved in that process, so if they are to outlive, they are aware of everything?

Tracy Fraser: Yes. Yes. They've got to be engaged in the conversations, have their fears addressed and acknowledged, educate them more on what their options are. It will just tie them closer to the advisor.

Roberta Rafaloff: And I will say from a plan design perspective I completely agree with everything you said. That's why when we talk to our plan sponsor clients we try to talk to them about how important it is to make these plans as flexible as possible because every individual is exactly that, an individual, and so you don't know if one person is in the plan, if their spouse has another plan, is that a working spouse, is that person taking time off to raise the family. So really making those plans as flexible as possible, taking into account all the different scenarios that individuals have in their personal lives that need to be brought into the retirement income conversation.

Jenna Dagenhart: For different kinds of clients, different kinds of families.

Roberta Rafaloff: Exactly.

Jenna Dagenhart: Everybody has different situations, so different annuities.

Eric Kaplan: As we think about the right questions that we want to ask; it's going to come down to understanding each individual and their individualistic needs. And I think they're just trade-offs. A lot of retirement income comes down to trade-offs because there's no silver bullet here. Everything is a trade-off when you make decisions about retirement income. So, whether it's, "I want guaranteed income." Or, "I want access to my money, so I want more liquidity." Whether, "I want stability of payment, or I want the ability to have a little bit more longevity of the assets." These are all trade-offs that people are making. "Whether I want to spend all of my money," as my parents say, or "I want to leave an inheritance." Right? This is a trade-off that we want to understand.

And so, as you start to think about developing the right strategy it does come down to what the personal preferences are of the individual or the family and having a good understanding of that.

Jenna Dagenhart: Any notable interactions that anyone has had that they would like to share along this topic, anything that really stands out along your careers of making sure that you are in line with the client needs and goals?

Eric Kaplan: Sure. As you think about some of the opportunities that you can learn from, we built a product back in 2007 and we put dates on them. It was really interesting and novel product because you could pick the timeframe that you wanted your income and at the end of it, we fully returned all that income to you. Think of an opportunity like bridge to Social Securities, you retire at 55 but you're not going to collect Social Security until you're 65. So, you pick a 10-year time frame and you invest some money in there and it slowly decumulates over that period of time.

We thought it was going to be a great product. Unfortunately, people looked at this and they said, "Oh my goodness, they're giving me back all of my money. It's like a death product. I have no interest in this whatsoever." And so, what we learned was a couple of things. One, you can't fully deplete people's money in any product, right? They're really concerned. It's just back to the core principles we talked about at the beginning, people do not want to run out of money. And even if it's their own investment and we're turning the money to them, to be able to spend, it doesn't actually, I think, psychologically work.

These are learnings that we had over time that we need to incorporate. And all the research supports it. Our retirement income is multifaceted but at the core of it we're trying to help people spend in their retirement and we're trying help them, so they don't outlive their earnings.

Jenna Dagenhart: So, people are emotional with their money.

Eric Kaplan: Oh, yeah.

Jenna Dagenhart: Really? Who would have thought?

Roberta Rafaloff: Who knew.

Eric Kaplan: There's no question, yes. Yes.

Jenna Dagenhart: And going back to healthcare some of these concerns, "Will I have enough money to pay for healthcare? Will that guaranteed income cover those costs, especially with the changing healthcare landscape?" How do you go about addressing those concerns and making sure that those needs are met? Roberta, do you want to take that one?

Roberta Rafaloff: Sure. Again, and I'm just going to broadly say, we need to make these offerings inside defined contribution plan as flexible as possible, because, yes, things like retirement medical care needs are going up, we all know that. And people need to be able to pay for those going forward, so if you have an income annuity it can cover whatever costs. As Tracy's mentioned before, people need to put down on paper what their expenses are, what they think their expenses are going to be in retirement and where's that gap between what Social Security is bringing in, if they're lucky enough to have a defined benefit plan. They most likely will be a gap, and how is your defined contribution plan going to help you fill that gap?

When I talk about flexibility, I really do believe wholeheartedly that you need to allow people to buy the income stream that is applicable to them, so if they can partially annuitize their dollars, their assets. And then as time goes on, if their inflation increases, if medical costs increase, they can buy more income if they need to. But you have that flexibility. So, you have some guaranteed income and then the remaining assets stay in the plan and you can, again, manage those assets as you need to.

Tracy Fraser: Well, at Transamerica we're really focused on wealth and health and the correlation between the two. A driving component of that is healthcare and healthcare cost. A lot of our clients don't know where to go for education. So once again it comes back to making sure the advisor is educated and has a... support team around them or know where to go get the answers to help clients, to answer the questions that they need in terms of what coverage should they have and how are they going to pay for it. So, giving the clients the confidence to move forward with making those decisions and know how they're going to cover their healthcare expenses is very important. And the earlier you have those conversations, the more prepared they can be. Similar to what we were talking about, understanding what your income is going to look like based on the assets that you've accumulated, that knowledge early on better prepares you to help you make confident decisions once you've entered retirement.

But the healthcare, it's a big number. It's a number that people typically are a little surprised to see. We take for granted the coverage that our employers provide for us and when you see what you would be responsible for once you enter retirement it's a very big number. So, the earlier you can bring that into the equation and factor that into what needs to be covered it really just helps that holistic approach to retirement.

Eric Kaplan: It's the same point, I think Roberta you were making before, if we can show people what liabilities are as they're entering retirement and they change behaviors, right? So if you just see the information, whether it's how much money I'm going to be able to spend with my earnings that I've accumulated, or what are my healthcare costs going to be, what is that whole experience, what am I going to be on the hook for at retirement, that better helps them to make the decisions that we were talking about before. What is it that's going to best meet my needs at retirement?

Jenna Dagenhart: So everyone's been in this industry for a while and I know you have many paths on how you got into the industry but you've seen it through a lot of different transitions and I want to get your perspective on how it's changing and then we'll pivot to where it's heading as well. But, Tracy, what have been some of your observations?

Tracy Fraser: Sure. I've seen the industry really change from being very transactional in nature to one that is developing more into that total plan that our clients need. The advisor's role in that journey has gone from just providing one or two options to being able to provide a whole menu of solutions to clients. The advisor's taking a more important role in our clients' and our customers' overall planning process similar to confiding in a doctor, having that be just part of their overall support.

But the products have evolved, and we don't get them right out the door, all the time, initially. But they're tweaked and they are made to meet clients' needs and the feedback that we get and things like that. The products have greatly changed over time, annuity specifically going from that perceived notion of being very rigid and not very flexible to being extremely flexible and very user friendly. The evolution's been very interesting, just both the advisors' role and all the companies that they work with and how they support and provide the products for the advisors.

Jenna Dagenhart: Yeah, it might not be quite as obvious to see that technology industry where we went from DVDs/CD players and Walkman, but it is there. Those are changes are very...

Tracy Fraser: It's not that obvious but it is there.

Roberta Rafaloff: Yeah.

Eric Kaplan: I think we have a similar story at Fidelity where... When I joined the company 20 years ago, we were very much a product-focused organization... I would say, mutual fund product-focused organization selling individual products. And over time that transition to asset allocation strategy, certainly the target-date strategy's grown quite a bit in popularity. Now, more recently, we're seeing an additional evolution as managed solutions come together, as we're really thinking about holistic planning experience for people. It really just gets back to all the points we were raising previously which is, we're trying to figure out how we get the best engagement, the best customization to deliver the best outcomes for the customers here. So, you can see it going from product to solutions to managed accounts.

Jenna Dagenhart: Roberta, what have been some of your observations along the way with retirement income?

Roberta Rafaloff: So, I think it's actually very interesting from a plan design or, plan sponsors perspective. It's almost come full circle. If you go back decades ago when defined contribution plans were really in their infancies and were really thrift plans, most of those did have an annuity as a distribution option and then over time with the advent of 401(k) plans they went away. But now it's come back full circle again with defined benefit plans going away. People don't have access to pension plans and 401(k) plans and defined contribution plans, plan sponsors are really starting to re-look at them and realize, "Geez, these are really income replacement plans. We need to rethink the distribution options that we're giving our participants and the access that we're giving them to." So, it really has come full circle where we're back to thinking about these plans as retirement income plans. And the solutions that are being talked about do provide that.

Jenna Dagenhart: And Eric, things will be constantly changing as we continue to move forward. Anything that you would like to reflect upon, changes you see in the next five to ten years?

Eric Kaplan: Yeah, absolutely. I think we're going to see a pretty big trend out there for retirement income as this big wave of baby boomers are entering retirement. I think the first wave is hitting 70 and a half this year or next year. They're going to see trends like, "How do we create sustainable income in retirement as really being front and center?"

And I think as an industry we have some really good tools and resources and products available to them, but I think over the next five and ten years, our responsibility is going to make sure that we really make sure that these people have successful outcomes in retirement.

Jenna Dagenhart: And Tracy, retirement income is certainly here to stay as long as people plan on not working forever and retiring, so what are some trends you expect to see and what are some way you think the industry will continue to evolve moving forward?

Tracy Fraser: Well, obviously we've talked about longevity so people are obviously living longer whether to believe that that's going to happen to them or not, which means we at a point now where we are almost replacing as much in retirement income as we did during the workforce years, meaning if you're 30, 40 years in the workforce, you could easily be 30 years in retirement and how you replicate or make up the income that you had before. And so, as longevity continues to be a major factor, thus also your healthcare costs going up, I think we'll see the industry continue to evolve in terms of their products and innovate in terms of what clients need. They will drive what we create in terms of the flexibility and what they feel that is needed.

So, I don't know what it will look like in five to ten years but the evolution... It's going to continue. We need to make guaranteed retirement income more accessible to more people and help them understand the benefits of it.

Jenna Dagenhart: You mentioned healthcare costs too. For most people those healthcare costs in retirement are going to be much higher obviously than the working years and not only is it almost equal time but different costs.

Tracy Fraser: Yes, definitely healthcare costs and just think about... We never used to talk about that sandwich generation that's taking care of their own children as well as their parents. That will only continue as people continue to live longer, so we have to figure out how to help people through all aspects and all stages of their life.

Jenna Dagenhart: We've talked about longevity, customization. Roberta, as you look into this crystal ball, what do you see moving forward for plan sponsors and for the industry as a whole?

Roberta Rafaloff: I agree with what Tracy just said. The evolution, I think, will be quite interesting to watch. I do think that we do need to see how people approach retirement income. I do believe that today... I use this as an example, if you go back to when 401(k) plans first began, they were very simple in their design. You could probably join the plan once a year, you could move your assets around maybe once a quarter. You had four, five investment options to choose from. Very basic, very simple compared to what they look like today.

I think we should start with our retirement income solutions in the similar fashion. So, simple, easy to understand products and solutions. I do believe however as people get and more comfortable with those, the evolution will be towards more complexity maybe, or more optionality, but it will be very interesting to see how this moves forward.

Jenna Dagenhart: Do you think access will help with that as well, people being able to check anytime their status?

Roberta Rafaloff: Yeah, I do. And again, we saw that with 401(k) plans. As people became more and more comfortable with investing and understanding what stocks are and bonds are, we saw different options start to come around. I think you'll see the same thing with retirement income. As people get more and more comfortable with it and understand it more and want more services and optionality then we'll start to see some interesting things develop.

Eric Kaplan: Yeah, I completely agree. I think to the extent that we can also partner with the plan sponsors and create some of those experiences as more automated, like we talked about, re-enrollment if possible, providing the products and services that are the best interest to participants, even if they are allowed to opt out of it, that could be a really get way to provide a one size fits most approach really improve outcomes for participants.

Jenna Dagenhart: Excellent. Well, thank you so much for joining us. We've had a very insightful conversation about retirement income. Really appreciate your time.

Tracy Fraser: Thank you.

Eric Kaplan: Thank you.

Roberta Rafaloff: Thank you for having us.

Jenna Dagenhart: And thank you for watching. I was joined by Roberta Rafaloff, Vice President of Institutional Income Annuities at MetLife; Eric Kaplan, Head of Target Date & 529 Product at Fidelity Investments; and, Tracy Fraser, Vice President of Business Development and Global Financial Institutions Group at Transamerica.

From our studio in New York, I'm Jenna Dagenhart with Asset TV.



Fidelity Investments is a diversified leading provider of investment management, retirement planning, guidance, brokerage, benefits outsourcing and other financial products.

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MetLife, Inc. (NYSE: MET), through its subsidiaries and affiliates (“MetLife”), is one of the world’s leading financial services companies, providing insurance, annuities, employee benefits and asset management to help its individual and institutional customers navigate their changing world. Founded in 1868, MetLife has operations in more than 40 markets globally and holds leading positions in the United States, Japan, Latin America, Asia, Europe and the Middle East.

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From our very beginning, Transamerica's been committed to helping our customers build a solid financial foundation for today and tomorrow. And we’ll continue to do so with innovative insurance and financial products that are as affordable as they are exceptional. But we're also showing people how their wealth and health can work together, so they can reduce their health risks and benefit from less stress as they pursue financial wellness. After all, what good is wealth if you don't have the health to enjoy it?

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