As defined benefit pension plans continue to disappear, more people are seeing the importance of products, such as annuities, that provide a guaranteed source of retirement income for life, a new study shows.
In just one year, the percentage of people who consider an annuity a highly valuable addition to Social Security has grown from 61 percent to 73 percent, according to the "Guaranteed Lifetime Income Study" by Washington, D.C.-based research firm Greenwald & Associates and CANNEX Financial Exchanges Ltd., which supports the exchange of pricing information for annuity and bank products in North America.
The survey of 1,003 pre-retirees and retirees aged 55 to 75 with more than $100,000 in household assets showed respondents valued the products for different reasons. Fifty-four percent felt guaranteed lifetime income products could help with health-care costs in retirement, 52 percent said annuities could help protect them against market downturns, and 46 percent said the products could keep them from running out of money in retirement.
Financial advisors are the most frequently used source of information for people learning about annuities, with 39 percent of participants learning about annuities from advisors and 23 percent learning from financial institutions.
Seventy percent of respondents said they believe financial advisors have a responsibility to discuss guaranteed lifetime income products with them. If they fail to do so, it would be a reason to consider changing advisors. However, only half of those working with an advisor have had this conversation, the survey says.
A full 43 percent of those with assets between $100,000 and $249,000 are highly concerned about meeting their financial needs in retirement. At all asset levels, more women are highly fearful of outliving their assets (37 percent) than men (22 percent).
The survey found respondents expect a substantial cut in income when they retire, but don’t anticipate the income they will receive will change significantly during their retirement. Forty percent of the pre-retirees expect to receive annual incomes of less than $50,000, 23 percent anticipate incomes of $50,000 to $75,000, and 16 percent expect to receive $75,000 to $99,000.
Approximately 20 percent expect to receive more than $100,000 in retirement income.
"Respondents are optimistic that market growth in their savings, along with a lower level of expenses, will enable them to maintain their quality of life in retirement,” said Gary Baker, president of CANNEX USA, in a statement. “Given limited savings and rising costs, drawing down assets will be a necessity for most retirees, making the risk of running out of funds a question of time without lifetime income strategies.”