Investors Favor Annuities, Protection Over 60/40 Allocation: Survey

As part of a new study, Alliance for Lifetime Income and CANNEX asked investors to build their own hypothetical $1 million portfolio. Here's what respondents came up with.

Investors allocated 20% of their portfolio to dividend-paying stocks, $200,000; 14% to real estate, about $145,000; and 13% to annuities, $136,000. They rounded out their top five asset category choices by allocating 11% to bank CDs and 10% to bonds.

They allocated only 3% to 4% to "trending" investment opportunities, such as cryptocurrency and special purpose acquisition companies.

According to the alliance and CANNEX, the findings contradict the long-standing 60/40 strategy in which 60% of a retirement portfolio's assets are invested in stocks, while the remaining 40% are invested in bonds — an approach originally designed to simultaneously grow assets and provide income.

"Investors showed a clear interest in building a retirement portfolio that was protected with an annuity," Jean Statler, chief executive of the nonprofit consumer education organization Alliance for Lifetime Income, said in a statement.

"We believe this is yet another blow to the outdated 60/40 portfolio mindset. Our research continues to show growing interest and significant demand from consumers for protected income, as more Americans become educated about the lifetime income, asset protection and other benefits of annuities."

Statler also noted that the research found that financial professionals continue to underestimate consumers' intense interest in annuities that provide steady income, which is important in volatile markets.

The study found that 85% of investors were interested in owning an annuity that guarantees lifetime income or already own one. Of investors who are interested in owning an annuity with lifetime income, 49% are extremely interested.

Contrast that with findings of the corollary study of financial professionals in which just 18% believed their clients are extremely interested in annuities with lifetime income.

"If that gap continues to widen, financial professionals are likely to find that their clients will go elsewhere for advice," Statler said.

The study showed that when they are presented with an investment opportunity, many investors fall victim to behavioral biases: 81% to familiarity bias, 81% to emotional gap and 66% to herd mentality.

"Financial professionals play a critical role in educating their clients about retirement income and annuities and can help them see past their cognitive blind spots," Tamiko Toland, director of retirement markets at CANNEX, said in the statement.

"For financial professionals who aren't at least considering annuities, it's fair to say that they may not be listening to what their clients and prospects are looking for and are missing a significant opportunity to do what's best for them."

Artemis Strategy Group conducted surveys in August and September among 2,004 investors ages 45 to 75, and 505 financial professionals, ranging from RIAs to national wirehouses.

Reimagining the 60/40 Portfolio

Seventy-two percent of surveyed advisors reported that they had changed their approach to retirement planning during the past year; 80% cited low interest rates as a reason behind their shift.

As a result, 68% of these advisors said they are putting more into stocks, while 48% are putting more into annuities.

Like investors in the survey, financial professionals were also asked to build their ultimate $1 million retirement income portfolio for an average client. They said they would allocate just 20% of the assets to bonds while putting 18% into annuities.

For the rest of the portfolio, they would allocate 53% to stocks, approximately $530,000 — including 31% to dividend-paying investments, 14% to other equity investments and 8% to international investments.

They would allocate 4% of the remaining portfolio to alternative investments and a total of 5% to real estate, bank CDs, cryptocurrency and SPACs.

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