Chris Raham

After decades of handing their dollars over to financial companies, the country’s droves of baby boomers are going to want that money back – and soon – for their retirement years.

It sounds like an iffy situation for financial companies, who would face a famine of funds after boomers switch from contributing money to siphoning it out. But major life insurers are trying out new types of products with a different take on the draw-down process, hoping to snag boomer investors.

Those products will help prevent any large-scale exodus, analysts say.

“It’s not going to be the catastrophe that many people think it’s going to be. It’s going to be a more orderly exercise,” said Chris Raham with Ernst & Young.

Still, boomers are going to be drawing upon the $13 billion they’ve invested, he said: “The difficult for the industry is: ‘How to manage that?'”

A study this month from insurance researcher Conning & Co. examined the ways insurers are adapting to the country’s changing demographics. Generally, they’re selling new products that guarantee investors’ money won’t run out before they die.

Raham said life insurers are well-placed to scoop up investor dollars because they can draw upon mortality and morbidity pools to make these types of guarantees – other financial companies aren’t able to do that.

John Hancock, Prudential, MetLife, The Hartford – all have created products that play to this need for security, said Greg Smith, vice president of Hartford- based Conning, but it isn’t just large companies’ turf.

“There is room for smaller and medium-sized companies to do these products,” he said, and he expects more of these to try their hand at such guarantees.

Building Bit-By-Bit

These products tend to fall in two types of categories, Smith said: The first is a hybrid-style idea, where plan participants can start funneling money into a “wrapper” that builds a pile of guaranteed funds. Instead of taking a lump sum out of retirement accounts and turning around to buy an annuity when you’re 65, Smith said, you can start setting aside a portion much earlier. This portion will keep up a flow of income until you die.

Hartford-based The Phoenix Cos., for example, has a plan that comes with a “trigger point”: if your funds dip below a certain level, Phoenix’s guarantee kicks in and keeps the funds from drying up.

The second general type of product creates a pension-like portion on your investments, Smith said.

The Hartford, for example, offers a product that makes a calculation based on things like the your age and the interest rate environment, and declares up front how much income you’ll get when you retire. You can buy as many shares as you wish, knowing exactly how much money each one will yield per year after retirement.

John Hancock Financial Plan Services launched its take on this type of product in April with the 401(k) Guaranteed Income for Life plan. That product allows 401(k) participants to invest in specific funds to create a benefit base. Once distributions begin, participants get a pre-calculated amount of money for the rest of their lives, with the option to reap a higher amount if their investments fare well, according to a statement released during the product’s launch.

“When you buy it, you’re giving over the investment risk to the insurance company,” Smith said. “It’s a lot different than looking at an account balance and saying, ‘I have this much money in my account, but you don’t know how much it’ll be worth when you reach retirement.'”

Instead, some insurers simply put the amount you’ll get right on your 401(k) statement – like a pension, he said.

Insurers like Hancock have taken in plan participants already, and more see a ripe market to get into, but Smith said these plans will take a long while to become accepted.

Some plans work for individual investors, he said, but others go out to employee-oriented plans. That means you have to sell the idea to plan providers, who are often already overwhelmed by the difficulty of keeping up with regulations concerning their contributors.

“I am beginning to see seminars and things directed at plan sponsors in order to get the word out on these products, and I think that it’s a process that will take some time,” he said, predicting that it would be too late for many in the first wave of boomer retirees.

“As far as these products are concerned, the industry needs to work hard to get out there and get plan sponsors for them.”