With a large segment of the population mismanaging small accumulations, more people will likely rely on government or other societal support than would be the case if they had better-managed, larger accumulations.

Annuitizing retirement accumulations, in the eyes of many economists and sociologists, eliminates many of the above concerns by providing a steady income to those who might otherwise not have one. Such a move would not completely eliminate dependence upon government or private-sector support because citizens can still mismanage a steady income. But by and large, economists seem attracted to the trade-off.

Last year, a fair bit of publicity went to the General Accounting Office after it released a study that said with only about 6% of 401(k) participants taking a lifetime income payment option, it was likely more should consider doing so for a portion of their retirement assets.

Someone who is receiving a secure annuity check cannot outlive their income. They do not have to make decisions about where to invest their funds nor do they need to make subsequent decisions about how to adjust these choices. Their decision-making has been greatly simplified. They need only make decisions about how to spend the income.

Contrast that to the enormous complexities involved in managing a retirement portfolio. I see a constant flow of media discussing an infinite variety of topics such as where retirees can find higher-yielding investments, how one should position their retirement assets, how to manage income taxes on a nest egg, and what a safe initial withdrawal rate may or may not be.

In addition to technical issues, there's an enormous and growing amount of information and suggestions about how to incorporate a retiree's values and psychological traits into their plans. As I mentioned in a prior column about whether clients were ready to retire, a budding community of academics and practitioners is examining what it takes to have a successful retirement in non-financial terms, including happiness, relevance, contentment.

The proliferation of blogs and social media has only added to the volume of information one can be exposed to with respect to retirement. Not all of this information is "good" or useful, and it adds to the potential for client and/or advisor confusion. A steady secure annuity check minimizes, if not eliminates, much of the complexity, anxiety and potential for error that managing a retirement portfolio presents.

One might expect that the perceived certainty of a steady, secure annuity check would be very attractive relative to the uncertainties that come with managing a lump sum. Research seems to support this idea. Work by Bender (2004) and Panis (2003) both find retirees are happier with a defined benefit pension than they are with a comparable amount of wealth in a retirement account.
Yet, few clients buy these annuities. Why?

I'll address several reasons in my next column, but before I end this one I'll mention one of the more popular scapegoats within financial services now.

I often hear people blame compensation policies for financial advisors, consultants or planners as a reason clients don't buy these annuities. As with any business, in financial services some unethical people are not doing what they should for their customers. I have no doubt that compensation plays a part for them, but I'm skeptical that it is as significant a factor as the issues I'll discuss next month.