Americans Wish They Had a Pension, Would Consider Annuities

Workers fear that poor financial markets will leave them with inadequate funds in retirement

By Stephen Miller Aug 16, 2010

Four out of 10 respondents (38 percent) believe that they will outlive their retirement savings, according to a retirement-preparation survey, fielded April 21-May 4, 2010, among a national sample of U.S. adults age 25 and older by market research firm Ipsos.

When asked if they wish they had a defined benefit pension plan at work, half of all respondents said yes, even among those ages 25-34.

"This was surprising considering how far removed this younger generation is from the days of defined benefit pension plans," said Peter Saracena, senior vice president at Ipsos.

"Whether they hit the job market 10 years ago or two years ago, younger Americans have experienced market bubbles bursting first-hand, which has seriously eroded their confidence in the equity markets," Saracena added. "So, it’s a smart and rational response to want something safe and secure now. The ramifications of this market dynamic on the investment choices Americans will make over the next 30 to 40 years is only now coming into focus. And, make no mistake, even the younger generation is very realistic about their prospects for retirement, especially when you find that only 4 percent of them believe that Social Security will provide enough income to live in retirement.”

Even though seven out of 10 U.S. adults say they control their finances and make financial decisions, nearly half of those who are not yet retired (48 percent) believe that they will not have enough money to maintain their current lifestyle in retirement. More than half of those already retired (53 percent) are concerned about their current financial situation, according to the survey.

Annuities as an Option

While there is no silver bullet to fulfill the retirement needs of Americans, the U.S. Department of Labor is preparing guidance on the role of guaranteed lifetime income products within defined contribution retirement plans.

When asked about "the potential for a fixed-rate annuity inside of 401(k)s that could be contributed to over time, that was portable from one plan to another if you left your job, that would provide a guaranteed lifetime income, and that would pay a lump sum to beneficiaries upon death if the account balance exceeded the amount already paid out," three quarters (74 percent) said they would like having this option available, with 83 percent of those 25-34 feeling the same way. More than half of all respondents (55 percent) felt that having this 401(k) annuity option would be like contributing to a pension, Ipsos found.

Boomers' Attitudes

When it comes to asset allocation, baby boomers say they are willing to sacrifice a portion of their assets if it will help them achieve their retirement goals, according to MainStay Investments' Boomer Retirement Lifestyle Study.

Eighty-four percent of baby boomers surveyed (age 45-65 and not yet retired) said that they would be willing to allocate a portion of their total assets in order to guarantee income for life. However, around half of the 84 percent said that they would only be willing to allocate a portion of their assets if the income was enough to cover both basic and discretionary expenses. The survey was fielded from May 3 - May 13, 2010.

"The research indicates that an appetite for guaranteed income products clearly exists among this demographic," said Matthew Leung, director and head of practice management programs at MainStay Investments, a subsidiary of insurer New York Life.

Employer Offerings Still Lag Behind Employee Interest

Very few U.S. companies offer annuities as a defined contribution distribution option (just 16 percent), according to MetLife’s
8th Annual Employee Benefits Trends Study, which surveyed benefit decision-makers and full-time employees at companies with a minimum of two employees during the fourth quarter of 2009.

Among companies with 100+ employees who offer a 401(k) plan, of those that don’t currently offer annuities as a distribution option, only 20 percent are considering them, MetLife found. However, only 14 percent of benefit managers at these firms said they would not consider offering them, with many others unsure if they would or wouldn’t.

“With nearly five in 10 workers interested in having their employers offer annuities and other lifelong income products, there may be an opportunity for more employers to give these options careful consideration,” said Jody Strakosch, national director for MetLife’s Retirement Products group.

According to the study, 55 percent of workers would prefer to receive part of their nest egg for as long as they live rather than taking all of it in a lump sum, whereas only 9 percent strongly disagreed with that statement (likely indicating that they prefer the lump sum).

“To some extent, these findings buck conventional wisdom,” Strakosch said. “We know from the annuity take-up rates that very few workers actually annuitize their savings at the point of retirement. That said, we’ve long believed that the time would come when workers would shift their retirement focus from assets to income. We think that paradigm shift—from a singular focus on asset accumulation to ensuring that their retirement savings provides lifelong income—is occurring now. In the coming years, we expect that to translate into more workers being given an opportunity by their employers to annuitize at least a portion of their retirement savings.”

Stephen Miller is an online editor/manager for SHRM.

Related Articles—SHRM:

Reconsidering Annuities in Retirement Plans, SHRM Online Benefits Discipline, June 2010

DOL: Comments Sought on Lifetime Income for Retirement Plans, SHRM Online Benefits Discipline, February 2010

More Employers Consider Annuities in 401(k) Plans, SHRM Online Benefits Discipline, January 2010

Related Video:


Annuities and Retirement Savings
Employers should weigh the pros and cons of providing annuities as a retirement savings option, says Dan Houston, president of retirement services at the Principal Financial Group.
View this video

Related Articles—External:

401(k) Follies and the Need to Reinvigorate the U.S. Annuity Market, Social Science Research Network, August 2010

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