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Employee Opinions about Partial Annuitization in a Retirement Plan

Michael Finke and Jason J. Fichtner
The Journal of Retirement Winter 2022, jor.2021.1.095; DOI: https://doi.org/10.3905/jor.2021.1.095
Michael Finke
professor and Frank M. Engle Chair of Economic Security at The American College of Financial Services in King of Prussia, PA
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Jason J. Fichtner
is vice president and chief economist at the Bipartisan Policy Center in Washington, DC
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Abstract

Prior research finds mixed evidence of annuity preference among workers. In a survey of participants in an employer-sponsored retirement savings plan, the authors found that nearly twice as many prefer a mix of annuitized income and investments to a system that offers only investments or only a pension. When given a choice to allocate savings among stocks, bonds, and an income annuity, respondents would place 33.5% of their total retirement savings in an income annuity, and higher annuity allocations are preferred by older and average-income respondents. The most important attribute of a retirement savings plan is the ability to understand how much a retiree can safely spend. Eighty-one percent of participants indicate that they are somewhat or highly likely to prefer a retirement plan that substitutes guaranteed income for bond investments. The peace of mind offered by a product that provides a guarantee of lifetime income, the reduced fear of outliving savings, and the ability to budget spending in retirement are the most frequently cited reasons for preferring an annuity.

Key Findings

  • ▪ Nearly twice as many participants prefer a mix of annuitized income and investments to a system that offers only investments or only a pension.

  • ▪ Respondents would allocate an average of 33.5% of their total retirement savings to guaranteed lifetime income, and higher allocations are preferred by workers near retirement with incomes between $50,000 and $100,000.

  • ▪ The peace of mind offered by a product that provides a guarantee of lifetime income, the reduced fear of outliving savings, and the ability to budget spending in retirement are the most frequently cited reasons for preferring an annuity.

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The Journal of Retirement: 10 (1)
The Journal of Retirement
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Employee Opinions about Partial Annuitization in a Retirement Plan
Michael Finke, Jason J. Fichtner
The Journal of Retirement Oct 2021, jor.2021.1.095; DOI: 10.3905/jor.2021.1.095

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Employee Opinions about Partial Annuitization in a Retirement Plan
Michael Finke, Jason J. Fichtner
The Journal of Retirement Oct 2021, jor.2021.1.095; DOI: 10.3905/jor.2021.1.095
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