EMERGENCY EXPENSES, MARKET FEARS DRIVE AFFLUENT INVESTORS TOWARD CASH EQUIVALENTS, ACCORDING TO METLIFE POLL

EMERGENCY EXPENSES, MARKET FEARS DRIVE AFFLUENT INVESTORS TOWARD CASH EQUIVALENTS, ACCORDING TO METLIFE POLL

New York, NY November 18, 2010

Concern about having to meet unexpected expenses is causing many more-affluent Americans to rely heavily on savings accounts, CDs and money market funds as they save for retirement, even though there is considerable dissatisfaction with the returns available on these vehicles. According to Money on the Sidelines, a new poll released today from MetLife, 58% of more-affluent investors (those with $200,000 or more in investable assets) cited emergency expenditures as the primary driver for keeping a portion of retirement savings in liquid accounts. One-half of this group had at least one unexpected expense in the past year of $2,000 or more, and nearly three in ten (29%) had between two and five major emergency expenditures.

Not wanting to tie up funds up in a long-term investment (43%) and a volatile stock market (31%) were other major concerns spurring the desire to have liquid funds on hand. The poll, conducted online for MetLife in September 2010 by Harris Interactive, surveyed 1,858 Americans age 45 and older, including 500 individuals with $200,000 or more in investable assets.

Borrowing to Pay Expenses
Surprisingly, more than one-third (35%) of the more-affluent investors polled had to borrow funds from various sources – including credit cards – to pay for an unexpected expense of $2,000 or more in the past year. And, even with a desire to cut back, many of the more affluent indicate that reducing spending is not an easy choice. Nearly half (49%) say that if they cut discretionary spending by 10% or less it would mean a dramatic change in lifestyle.

“Wanting the ability to meet unexpected expenses and concerns about the stock market are not surprising in today's environment. But there is a high cost to keeping retirement savings in these low-yielding products," said Robert E. Sollmann, Jr., executive vice president, Retirement Products at MetLife. “Instead of compromising their future retirement security, fortunately, investors and financial professionals are increasingly seeing the value of products like annuities. Some of these vehicles with optional living benefit riders let people invest in potentially higher-yielding assets, take immediate withdrawals to help meet unexpected expenses, generate predictable lifelong income, and help protect against market declines. It’s a solution that can help give investors the confidence to put their retirement savings back to work and the flexibility to meet their changing needs.”

According to the poll:

• Forty-five percent of the more affluent reported using assets from emergency savings to pay for an unexpected expense, and 32% used liquid investments such as CDs. However, more than one in five (22%) used a credit card or other revolving debt, 9% took out a home equity loan and 4% borrowed from a retirement savings plan.
• To replace the money used for the unexpected expenses, over one-quarter (28%) of more affluent Americans say they will cut back on discretionary expenses, and 15% say they’ll cut back more on typical household outlays – even though few can afford to trim much without experiencing a significant change in their lifestyle.

Retirement Investing: Liquidity a Cornerstone
Compared to the general population, affluent investors are much more likely to have changed the way they invested for retirement as a result of the financial crisis. More than half (54%) of this group said they changed the way they invest versus 29% of the general population. Cash management concerns have led many of the more well-off investors to effectively “park” some of their retirement finances in highly liquid accounts. According to the poll:

• While 65% of more-affluent Americans are using mutual funds as a vehicle to save for retirement, a hefty 52% are using bank savings accounts, 51% are using money market accounts and 38% are using CDs. Other savings vehicles used include Treasury/savings bonds (21%), municipal bonds (20%) and fixed annuities (19%).
• However, more- affluent investors are dissatisfied with the slim returns from their liquid accounts including CDs (51%), bank savings accounts (58%) and money market accounts (46%).
• In addition to wanting to keep assets liquid to cover household emergencies and concerns about the stock market’s volatility, these investors are keeping assets liquid in case they need to help a friend or family member (26%) and because other investment options are too risky (20%).
• Almost one-fifth of affluent investors (19%) say they’re making more investments in CDs or money market accounts.
• When looking for a tax-advantaged saving vehicle, the more-affluent would consider tax-exempt municipal bonds (63%), fixed annuities (28%) and variable annuities (23%).

General uncertainty around retirement planning in today’s environment is evident from the survey. Weak economic growth was mentioned by one-third as the economic factor that concerned them most in planning for retirement, followed closely (29%) by government budget deficits. More than one-half (52%) expressed concern about having adequate and affordable medical care in retirement.

Understanding Tolerance for Risk
When asked what is required when planning for retirement today, the two most frequently cited needs by the more-affluent were understanding their tolerance for risk (71%) and understanding the various investment options (70%). Other requirements were a calm, analytical approach (64%) and the help of a professional financial advisor (53%).

When it comes to living in retirement, affluent Americans’ risk tolerances understandably differ, underscoring the need for investors to determine their own risk comfort level. Half of this group (50%) say they would be comfortable giving up access to their retirement savings in order to receive the most income possible, while half (50%) say it’s important for them to have a large portion of their retirement savings available to them at all times, even though that may mean less income is available throughout their retirement years.

However, most don’t want to run the risk of running out of money in retirement – two thirds (64%) say they would prefer a predictable retirement income check each month, even if they give up some of their ability to take more income if they need it, versus about one third (36%) who say that having the flexibility to use their retirement savings to generate the income they want today is important to them, even if it means they run the risk of running out of savings and having no money later.

“Investors today are much more aware of the risks they’re willing to stomach and are looking for plans that fit with their preferences for both flexibility and guarantees,” said Julia Lennox, vice president, Retirement Products at MetLife. “There’s an opportunity for financial professionals to play a lead role in helping people to understand their current risk tolerance and how to balance that with their income needs both before retiring and in retirement.”