Ernst & Young – Study on Retirement Success

10 OCT 2022
Permanent life insurance and deferred income annuities with increasing income potential outperform investment-only approaches in our analysis.

In brief:

• By 2030, gaps in investors’ retirement savings and needed protections are projected to exceed hundreds of trillions of dollars in the US.
• This presents an opportunity for insurance companies to better serve customers to bridge these chasms, through modified investment approaches.

Although facing challenges, the US life insurance and retirement industry has enormous potential to grow. Our analysis reveals insights on how best to capitalize on this opportunity.

EY researchers estimate that by 2030, there will be a $240 trillion retirement savings gap and a $160 trillion protection gap. Insurers are uniquely positioned to address these gaps with products that offer legacy protection, tax-deferred savings growth, and guaranteed income for life.

In this article, we explore how two products can be used to meet investors’ savings and protection needs: permanent life insurance (PLI) and a deferred income annuity with increasing income potential (DIA with IIP), which represents deferred income annuities with persistency bonuses and non-guaranteed dividends. Can integrating PLI and a DIA with IIP into a retirement plan provide value beyond an investment-only strategy?

It is a complex question to answer. To judge the impact of PLI and DIAs with IIP, we analyzed five strategies conducted across three different starting ages: 25, 35, and 45. For each strategy, our Monte Carlo analysis generated 1,000 scenarios based on randomized input from a range of factors, such as interest rates, inflation rates, equity returns, and bond returns. The high-level results are shown in this summary article and elaborated upon in our full report.