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April 2017  Volume 15, Number 4        

Pension Plan Decline Prompts Interest in Annuities

While fewer employers are offering workers defined pension plans, a growing number of companies are taking a renewed interest in providing annuity income options to their employees, the Employee Benefit Research Institute found.

The brief found that people with the least and most assets are more likely to buy annuities than people in the middle of the savings distribution. Also, savings have a large positive effect on preference for annuities only for those in the highest savings category.

Some possible explanations for such behavior include:

  • People at the bottom of the savings distribution are very likely to run out of money in retirement and thus are inclined to select annuities.
  • People at the top end of the savings distribution expect longer lifespans and can afford annuities even after leaving a financial legacy for their heirs.
  • People in the middle generally face more uncertainty about the adequacy of their retirement savings, and so they are more likely to hold on to their savings for precautionary purposes and perhaps also for some hope of leaving a financial legacy for their heirs.

The study found workers had a clear preference to annuitize only a portion of their retirement assets. When compared to their current financial situation, only 16.5 percent of retirees (ages 65 and above) preferred full annuitization 43.0 percent who preferred a one-quarter annuitization.

“Over the years — and particularly as roughly 10,000 Baby Boomers have begun to turn 65 every day — more emphasis has been placed on retirement income strategies and the role of annuities,” the authors wrote. “For example, product variations, including joint and survivor annuities, deferred annuities, period-certain guarantees, annuities with settlement or withdrawal options, and inflation-protected annuity payments, have been tried to make annuities more attractive.”

For more information about annuities, please contact us.

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In this issue:

This Just In...

President Trump and House GOP Introduce Obamacare Replacement Plan

Millennials Driving Growth of Health Savings Accounts

Employees Overwhelmed by Complex Health Options

Pension Plan Decline Prompts Interest in Annuities



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