Tell us more about annuities!
That's the message workers with defined contribution plans have for their employers, according to a new survey published Tuesday. Eighty percent of plan participants expressed interest in putting some or all of their money into annuities.
Despite this, many companies fail to offer annuity choices within their employer-sponsored plans, the 2018 Retirement Confidence Survey issued by the Employee Benefits Research Institute and Greenwald & Associates found.
Some workers, particularly those close to or in retirement and lucky enough to benefit from a corporate pension, are still hesitant about annuities, the survey found.
“There’s still a relatively large percentage of people at or near retirement with defined benefit income and Social Security, so their need for them for a third annuity is much less,” said Craig Copeland, EBRI senior research associate director and co-author of the survey.
On the other side, employers hesitate to offer annuities.
Employers who offer a corporate pension, companies who want assurances in the face of fiduciary responsibilities, and employers who prefer that income be handled outside the plan prefer to steer clear of annuities, EBRI researchers said.
But when employees who have worked their whole lives and set aside part of their salaries in 401(k) and 403(b) plans finally start to retire in larger numbers, that’s when demand for extra layer of income from an annuity should really strengthen.
“It looks like we are getting there but there are still a lot more people comfortable with their cash and investing that cash on their own,” Copeland said. “We will start to get there but it still hasn’t happened yet.”
The survey, conducted in January, polled 1,002 workers and 1,040 retirees.
Among the Findings:
Without question, workers are drawn to annuities, the survey found.
- 21 percent of plan participants say they will use their plan money to buy an annuity or a product that guarantees monthly income for life.
- 48 percent of workers report being very or somewhat interested in annuity products compared to fewer than 20 percent of retirees.
- 31 percent of defined contribution plan participants say they don’t know whether they will roll their 401(k) money into an individual retirement account (IRA), keep it in their employer-sponsored plan or simply cash it out.
Compared to the array of 401(k) investment choices to help workers accumulate wealth, workers have far fewer few in-plan annuity choices to help them with asset de-accumulation and turning assets into income.
A dearth of annuity choices has many retirement experts calling for company plans to expand lifetime income choices as the first wave of workers to rely solely on their retirement plan contributions move into their mid-50s.
Nearly two in three workers say they feel confident or somewhat confident in their ability to retire comfortably, the survey found.
But that might also be a flawed assumption.
What workers expect in income from working in retirement compared with the actual experience of retirees reveals a big gap.
As many a 68 percent of workers expect income from work to be either a major or a minor source of income in retirement, but only 26 percent of retirees say it actually is for them, the survey found.
Good financial advisors know that workers often overestimate the amount of income they will earn in retirement.
Older workers often find it difficult to earn a decent wage because they may be too expensive, require too much retraining or suffer from a disability that reduces productivity.
Workers today may be relying too heavily on their ability to generate future income, which is why many advisors often recommend that people use annuities to cover basic retirement expenses.
Nearly one in two – 45 percent – of workers expect to work with a financial advisor if they have not yet done so as they approach retirement, the survey found.
Other Survey Findings
Q: How interested would you be in putting some or all of your workplace retirement plan savings into an investment option within your plan today that would guarantee you monthly income for life when you retire?
- 28 percent very interested
- 52 percent somewhat interested
- 14 percent not too interested
- 5 percent not at all interested
- 1 percent already own this product.
Q: When you retire how interested do you think you will be or are you in purchasing an insurance product with a portion of your savings that begins providing guaranteed monthly income at some point in the future, such as age 80 or 85?
- 7 percent (of workers) very interested
- 41 percent somewhat interested
- 35 percent not too interested
- 16 percent not at all interested
- 1 percent already own this product
- 1 percent refused.
InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected]
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