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.