Retirement Security

Last Updated 8/11/17

Introduction: Retirement security is a major national concern in the U.S. with significant impacts for the insurance sector. Whether starting a career or counting the days to retirement, financial and insurance planning should be a priority for Americans of all ages. Retirement security encompasses a broad spectrum of financial tools, including many insurance-related products and services such as life insurance, annuities, and long-term care insurance. The marketing and sales of these products are also areas which fall under the retirement security umbrella. State insurance departments and the NAIC can play an important role in helping American consumers prepare for financial security as insurance is a key part of a comprehensive retirement plan.

Background: Advances in healthcare have led to longer life expectancies. At the same time, many employers have moved away from defined benefit pension plans toward defined contribution plans such as a 401(k). As such, the responsibility for funding and managing retirement assets has shifted solidly to the consumer. This is a daunting task for many Americans.

Americans face significant obstacles in preparing and saving for a financially secure retirement. Many Americans are dramatically under-saved. According to a report by the Insured Retirement Institute, only 54% of Baby Boomers have any retirement savings at all. Moreover, only a quarter of Baby Boomers are confident their savings are sufficient to carry them through all their retirement years. Financial literacy skills are lacking for many, leaving them unprepared to accumulate and manage the substantial assets necessary to assure a comfortable retirement. Interestingly, a 2017 Mercer report found “financial courage” leads to better individual outcomes than even financial literacy.

Insurance products can play an important part in overcoming these challenges. Life insurance proceeds can potentially help a beneficiary enjoy a financially secure retirement by replacing years of retirement savings cut short by a premature or unexpected death. Annuities, while not suitable in every situation, can provide a guaranteed income stream in retirement for some consumers. Additionally, as at least 70% of Americans over the age of 65 will require long-term care (LTC) services in their lifetime, long-term care insurance can be an effective hedge against the high costs associated with this kind of commonly-needed care.

Status: In 2016, the NAIC launched a new Retirement Security Initiative. The Initiative focuses on three major themes: Education, Consumer Protection and Innovation. This three-pronged approach allows regulators to identify regulatory or policy issues in need of review, as well as highlight barriers to innovation, product delivery, and compliance.

The first platform of the Initiative focuses on consumer education. The NAIC Communications Division offers a Retirement Security microsite with consumer resources and information about related NAIC Committee activities. Additionally, the NAIC is reviewing continuing education requirements for insurance producers to ensure knowledge of suitability requirements and prohibitions on unfair marketing practices. To help raise awareness around retirement security, the NAIC partnered with actress Rita Moreno, encouraging families to make smart insurance and retirement planning decisions together.

The Consumer Protection platform of the Initiative focuses on reviewing and updating NAIC model laws and regulations, particularly in the area of annuities, to ensure they continue to meet public policy needs.

In the area of Innovation, the NAIC is looking to identify and address areas in current laws and regulations that unnecessarily stifle innovation and new technologies. Additionally the Long-Term Care Innovations (B) Subgroup is exploring the future of LTC insurance and ways financing LTC figure into a comprehensive retirement strategy and financing the LTC needs or our society. The Innovation and Technology (EX) Task Force is also charged with monitoring technology developments in the insurance space that may impact the state insurance regulatory framework.

Lastly, the NAIC launched a national Life Policy Locator Service in 2016 to assist individuals in locating life insurance policies, especially in cases where the requestor or beneficiary has little to no information about the policy. An estimated $1 billion in benefits from life insurance policies are unclaimed, according to Consumer Reports.