Employee Opinions about Partial Annuitization in a Retirement Plan

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.