Study: Sustained low interest rate environment and market volatility putting retirement security at risk

NEWARK, N.J.--(BUSINESS WIRE)--Sustained low interest rates and market volatility are putting Americans’ retirement security at risk, according to new research developed by Prudential Financial, Inc. (NYSE: PRU).

“While the majority of Americans insure their most valuable assets in order to safeguard against significant financial loss, many don’t think to insure their ability to generate lifetime income”

According to the paper, “Should Americans Be Insuring Their Retirement Income?” sustained low interest rates, market volatility and longevity risk are three of the most significant risks to Americans’ retirement security. If interest rates continue to be low for an extended period, retirement assets invested in conservative investments will have little investment growth and are at risk of being exhausted earlier than expected, according to the paper. In addition, continued volatility of investment returns in the equity markets creates significant “sequence of returns” risk, or the challenge of making up for lost returns after a significant market downturn, particularly just before or just after retirement. These challenges, the paper notes, are compounded by the fact that people are living longer, which further increases the chance of exhausting retirement savings.

The paper includes research provided by Ernst & Young’s Insurance and Actuarial Advisory Services practice and discusses the likelihood of the average retiree exhausting his or her retirement savings based on a number of scenarios, including a sustained low interest rate environment and continued market volatility.

“While the majority of Americans insure their most valuable assets in order to safeguard against significant financial loss, many don’t think to insure their ability to generate lifetime income,” said Bob O’Donnell, president of Prudential Annuities. “Today’s guaranteed income products were designed to help protect retirees from running out of income in retirement, regardless of market conditions or increased longevity.”

Social Security and traditional pensions offer protection against these risks; however, this protection does not exist for income created from personal savings, unless individuals choose to put it in place. The paper argues that Americans should consider insuring retirement income through products such as individual annuities or guaranteed income products built into defined contribution plans to provide the peace of mind provided by other types of insurance.

“Life insurance helps families manage the risks of not living as long as expected, while guaranteed retirement income products help Americans manage the risk of outliving savings in retirement,” said O’Donnell. “This paper clearly demonstrates the real risks of a sustained period of low interest rates and market volatility to Americans’ retirement security, and the potential benefits of strategies that provide guaranteed income through retirement.”

Ernst & Young’s Retirement Analytics^smmodel projected 2,000 Monte Carlo simulations of investment returns, interest rates and lifespans.

Investors should consider the contract and the underlying portfolios’ investment objectives, risks, charges and expenses carefully before investing. This and other important information is contained in the prospectus, which can be obtained from your financial professional. Please read the prospectus carefully before investing.

Variable annuities are issued by Pruco Life Insurance Company (in New York, by Pruco Life Insurance Company of New Jersey), Newark, NJ and distributed by Prudential Annuities Distributors, Inc., Shelton, CT. All are Prudential Financial companies and each is solely responsible for its own financial condition and contractual obligations. Prudential Annuities is a business of Prudential Financial, Inc.

Annuity contracts contain exclusions, limitations, reductions of benefits and terms for keeping them in force. Your licensed financial professional can provide you with complete details.

A variable annuity is a long-term investment designed for retirement purposes. Investment returns and the principal value of an investment will fluctuate so that an investor’s units, when redeemed, may be worth more or less than the original investment. Withdrawals or surrenders may be subject to contingent deferred sales charges. Withdrawals and distributions of taxable amounts are subject to ordinary income tax and, if made prior to age 59½, may be subject to an additional 10% federal income tax penalty.

Optional benefits may not be available in every state and may not be elected in conjunction with certain optional benefits. Optional benefits have certain investment, holding period, liquidity, and withdrawal limitations and restrictions. The benefit fees are in addition to fees and charges associated with the basic annuity.

The benefit payment obligations arising under the annuity contract guarantees, rider guarantees, or optional benefits and any fixed account crediting rates or annuity payout rates are backed by the claims-paying ability of the issuing insurance company. Those payments and the responsibility to make them are not the obligations of the third party broker/dealer from which this annuity is purchased or any of its affiliates. They are also not obligations of any affiliates of the issuing insurance company. None of them guarantees the claims-paying ability of the issuing insurance company. All guarantees, including optional benefits, do not apply to the underlying investment options.

Prudential Financial, Inc. (NYSE: PRU), a financial services leader, has operations in the United States, Asia, Europe, and Latin America. Prudential’s diverse and talented employees are committed to helping individual and institutional customers grow and protect their wealth through a variety of products and services, including life insurance, annuities, retirement-related services, mutual funds and investment management. In the U.S., Prudential’s iconic Rock symbol has stood for strength, stability, expertise and innovation for more than a century. For more information, please visit http://www.news.prudential.com/

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