Some retirement lump sums depleted quickly

Business Wire

Lump sum payment or guaranteed monthly annuity? That's the decision facing many soon-to-be retirees with either defined-benefit or defined-contribution retirement plans. While a lump sum may be attractive to some, there could be significant drawbacks, a MetLife study has found.

In the Paycheck or Pot of Gold Study, released earlier this month, one in five surveyed retirement plan participants who selected a lump sum from either of those types of plans said they had they depleted it. Of those who depleted their lump sum, they said they had run through their money, on average, in five and a half years. One in three with money remaining said they were concerned about the money running out.

The online study was conducted by Harris Poll among more than 700 defined-benefit and defined-contribution plan participants. The study was designed to understand consumers' attitudes and decision-making with regard to lump sums and income annuity payments from several sources, including those types of plans. The full report examining these findings is available at www.metlife. com/paycheckstudy.

"MetLife's Paycheck or Pot of Gold Study highlights a real risk in retirement-running out of money," says Robin Lenna, executive vice president and head of Retirement & Income Solutions at New York-based MetLife Inc. "Today, people may live 20 or 30 years in retirement, and while lump sums may meet retirement plan participants' immediate needs, they may fall short in providing funds that can last a lifetime."

Ninety-six percent of retirement plan participants polled who chose an annuity from a defined-benefit or defined-contribution plan said they were happy with their choice. Similarly, the majority of participants who took a lump sum said they were glad they made the choice they did (93 percent for defined-benefit lump sum recipients and 85 percent for defined-contribution lump sum recipients). However, the lump sum recipients appeared to have had more financial concerns.

More than half of defined-benefit and defined-contribution plan participants who chose a lump sum (52 percent) conceded that, if they would have taken the annuity, their budget would be more predictable. In contrast, most participants (91 percent) who selected an annuity said they feel they are financially secure, and that the annuity payments make budgeting more predictable (95 percent).

In addition, four in 10 participants who chose a lump sum from their definedcontribution plan over an annuity said they wouldn't be concerned with outliving their assets if they had chosen to annuitize, and 38 percent of those who chose a lump sum from their defined-benefit plan say they wouldn't be afraid of running out of money in retirement if they had chosen to receive annuity payments. Sixty percent of annuity recipients said they believe they worry less about outliving their money than their friends and neighbors without steady income from an annuity, while only 6 percent said they believe they worry more.

When it came to spending their lump sums, 63 percent of study participants reported that they had major purchases/spending within the first year. But these decisions weren't without remorse-nearly one-third of those who made major purchases/ spending in the first year (31 percent) say they had regrets about it, and almost a quarter of those who gave money away said they regretted doing so. When asked about specific regrets, a 54-year-old defined-contribution participant commented that, "Once spent, (the money) will never be available for my future," and a 66-yearold defined-contribution participant said, "I didn't need the money then, but I need it now."

Lenna, the MetLife executive, says, "When an individual receives a lump sum, it is often more money than they have ever had at one time. As a result, it is easy to underestimate how quickly it can be depleted. Guaranteed income from annuities can help participants plan their spending, ensuring there is enough money available when they need it."

The research was commissioned by MetLife and conducted by Harris Polls. The study surveyed 1,069 adults, ages 18 and older, online in the U.S. between June 16 and July 11 of last year, including 712 adults who were 50 to 75, who received a lump sum of at least $25,000 if they had a defined-benefit plan or had a balance of at least $25,000 upon retirement in their defined-contribution plan, or monthly annuity payments of at least $500 from a defined-benefit or defined-contribution plan. Data were weighted where necessary by age, gender, race/ethnicity, region, education, income, and propensity to be online to bring them in line with their actual proportions in the population.

MetLife Inc. (NYSE:MET), through its subsidiaries and affiliates, claims to be one of the largest life insurance companies in the world. Founded in 1868, it is a global provider of life insurance, annuities, employee benefits, and asset management. Serving about 100 million customers, MetLife has operations in nearly 50 countries and claims to hold leading market positions in the United States, Japan, Latin America, Asia, Europe and the Middle East.