Over the last 20 years, the number of Fortune 500 companies offering traditional defined-benefit plans has dropped from 59% to 16%. If that figure is 16% at Fortune 500 companies, one can reasonably assume that it is lower at other employers.

According to BlackRock’s annual DC Pulse survey, the number of defined-contribution plan participants concerned about retirement income climbed to 62% from 51% in 2018. It’s not clear what’s driving it, but constant recession talk, the decline in interest rates and the equity market correction in 2018’s fourth quarter can’t have boosted their confidence.

As BlackRock sees the landscape, it is quite possible retirees “will have to consume all of their retirement savings as efficiently as possible” or face drastic “cuts in their lifestyle.” For most Americans, the latter choice looms large.

A 2017 study found that most retirees still had 80% of their pre-retirement savings after two decades of retirement. Certainly, healthy stock market returns have helped, but it’s also likely many people at all wealth levels have scaled back their lifestyles.

Some of this may be healthy. High-powered, two-income couples who worked until 7 p.m. or 8 p.m. may have discovered the joy of cooking once they have tons of time on hands.

I know several folks like this. But these same individuals would tell you they spend money a lot more carefully when they aren’t on the run.

When it comes to spending, however, folks without pensions were to likely to experience a much higher level of anxiety. Fully 55% said they were likely to “touch” or spend their assets for expenses. This contrasts with only 25% of people with pensions who used their assets for spending needs.

BlackRock, which indicated late last year it is working on a secretive retirement income project with Microsoft, openly asks why so many people possess an aversion to guaranteed-income products like annuities. If that aversion can be understood, could it find a way “to deliver sustainable income based on longevity pooling” that investors might find more acceptable.

Personally, I suspect this is what BlackRock and Microsoft are exploring. On the surface, longevity pooling makes sense. It is much more cost-effective for, say, the Arizona State Retirement Board to guarantee a certain level of income for 400,000 individuals than for each of us to do it for ourselves. After all, there is always a chance that you or I live to 105. The odds of 400,000 people living, on average, more than a few years past their life expectancies are almost non-existent.

One reason many people don’t like fixed annuities, especially today, could be historically low interest rates. The concept of locking in a lifetime income when 10-year Treasurys yield 1.7% sounds risky if rates ever normalize again. BlackRock calls this perception mental accounting—when people see the large purchase price as “too high” compared to the smaller payouts. They may also be under the spell of a “wealth illusion” and undervaluing the income equivalent of their account balance. Then again, they could also be right that today's interest rates won't remain at levels that punish savers severely.

Among employees with a cash balance plan, BlackRock cited a 2013 Employee Benefits Research Institute study that found only 22.3% of participants opted to annuitize. It then points to a 2017 MetLife survey that said 96% of those who opted for an annuity were satisfied with their choice. Among those who took the lump sum, about 20% spent the money in five years and 31% regretted their first-year spending. Little surprise with that last finding.

BlackRock ends the report by advocating that both income solutions and target-date funds be embedded in DC plans. Neither is a perfect choice, but there certainly is nothing wrong with giving people many options. It will be interesting to see what ideas BlackRock and Microsoft come up with. Almost two decades ago, Vanguard and others introduced managed payout funds. While they generated modest interest among a subset of retirees, they haven't emerged as a widespread alternative.

There are no clear-cut answers. Moreover, it’s prudent to question what kind of a shape an annuity provider will find itself in two decades from now—or what kind of returns the financial markets will provide. Personally, I found a study conducted last summer by Wade Pfau of the American College and Steve Vernon for the Stanford Center on Longevity to illuminate the difficult choices retirees face.

It may be a slight oversimplification, but Vernon and Pfau concluded that most retirees who opted for a healthy slug of annuities would enjoy higher income in their early retirement years, while those who relied on a 75 percent allocation to equities were likely to come out ahead later in retirement. Of course, their conclusions are predicated on the assumption that market returns remain healthy and that insurers successfully manage their way through a long, low interest-rate cycle.