Despite Interest, More Than Half Say They Are Unfamiliar With This
Retirement Planning Product
“This survey confirmed statistically what we have heard anecdotally for years -- that the majority of Americans don’t have a deep understanding of today’s annuities,” said
“At the same time, when these newer types of features are described, a lot of people say they would consider buying the product,” Mr. Fitzgerald said. “Annuities available today are ‘not your grandfather’s annuity.’”
When Americans were asked which benefits they would consider purchasing an annuity for, 71 percent selected at least one benefit. About half (49 percent) indicated they would purchase one to secure a predictable source of monthly income for retirement. Forty-one percent said they would purchase an annuity to leave money for their spouse or heirs. More than a third (36 percent) said they would purchase an annuity to provide money for chronic healthcare expenses, while 31 percent indicated they would purchase one for asset accumulation opportunities. Twenty-five percent said they would not consider purchasing an annuity for any reason.
Regardless of this interest in the various benefits annuities offer, the survey showed that most Americans would not describe themselves as familiar with the product. Fifty-three percent of participants indicated they were not familiar with annuities, (19 percent were “not very familiar” and 34 percent were “not at all familiar”). Thirty-two percent consider themselves “somewhat familiar,” and only 13 percent of participants said they were “very familiar.”
Converting Retirement Savings into an Income Stream
Conventional wisdom says that creating a dependable stream of income in retirement is a major challenge for pre-retirees and retirees. Surprisingly, then, 69 percent of the non-retired participants in Phoenix’s survey said they were confident they will be able to convert retirement savings into a predictable source of monthly income (28 percent said they were “very confident” and 40 percent said they were “somewhat confident”).
“Despite this high confidence level, many Americans are not on the right track with creating a predictable stream of income in retirement,” said
When asked how they were planning to convert (or are currently converting) their retirement savings into an income stream, most participants identified several methods that carry risks and are often inadequate:
More than half (55 percent) said that they plan to use their savings as a supplement to their pension and/or
Another 50 percent plan to withdraw a set amount each month or year from an IRA or employer-sponsored retirement account, such as a 401(k). “There is a big risk in using either IRAs and 401(k)s as a direct source of income, as they are subject to market volatility and are not guaranteed,” said
Only 20 percent are planning to use an annuity. “This is a low number, considering that annuities are a primary vehicle for producing a guaranteed income stream. It’s also much lower than the 49 percent who said they would consider purchasing an annuity to secure a predictable source of monthly retirement income. While it is encouraging that people are willing to consider annuities, they clearly need some help translating intentions into concrete plans,” Mr. Fitzgerald said.
Getting Advice When Planning for Retirement
Despite the need for financial advice, only 36 percent of participants who have not yet retired said they either currently work with a financial professional to help plan for retirement or have done so in the past. And, those who have worked with a financial professional have more confidence in their prospects for a financially secure retirement.
The vast majority (85 percent) of non-retired participants who have ever worked with a financial professional said they were confident they would be able to convert their retirement savings into a predictable source of monthly income. Only 62 percent of those not retired who have not worked with a financial professional expressed the same confidence. The survey also confirmed a common assumption that Americans with lower household incomes remain underserved by financial professionals. Only about a quarter (26 percent) of those with a household income below
“In general, people with more money are more likely to have benefited from professional counsel and are more confident they can convert their retirement savings into an income stream,” said
This study was conducted by