Sunday, October 12, 2008

Stock Market Crash of 2008 – Where Will Americans Put Their Retirement Savings?

Going into the week of October 6, 2008, the stock market was having a dismal year, since the Dow Jones Industrial Average was already down 27% from its high one year earlier. Then, the Dow almost inconceivably plunged 18% in one week. The already inadequate retirement savings of the Baby Boomer generation took a staggering hit.

American citizens have seen big banks fail. They have seen a major insurer, AIG, require a government bailout. They have seen a money market fund break the buck. What does it all mean for where they will put their savings in the future?

I suspect it means two things, one of which is immediately good for the fixed annuity industry, and the other of which will require us to adapt.

The first implication is that consumers have again been acquainted with what investment risk really means. Whoever wasn’t already spooked by the stock market decline of 2000 – 2002 is now terrified thanks to the incredibly rapid decline of 2008. Thus, people will value safety and will be perfectly happy with the modest level of returns offered by fixed annuities.

The second implication is that people want to be able to move their money quickly and without penalty when they see the need to move it. This is where the fixed annuity industry needs to change. Our competitors, banks and mutual fund companies, enable customers to move money around quickly and without penalty.

Thanks to the stock market crash of 2008, our message of safety and stability will sell very well in the future. If we can pair that value with high-tech service processes and giving our customers flexibility to move their money, we have the potential to move alongside mutual funds as the American public’s savings vehicle of choice.

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