Retirement planning is more complex, and the risk of running out of money is higher than ever. Why don't older Americans like annuities?
The decline of the traditional pension plan puts a growing number of older Americans at risk for running out of money in retirement, according to a new study from the American Association of Retired Persons or AARP. A life annuity could help reduce this longevity risk, yet only a minority of older Americans elects to buy annuity products. Why?
Less than one-third of high net worth investors own variable annuities and only one-fourth owns fixed annuities, according to a Millionaire Corner study conducted over the fourth quarter of 2011. Non-Millionaire investors are even less likely to own annuities. (Learn more about the pros and cons of annuity products.)
Our research also shows that running out of money in retirement is the biggest financial fear of investors, so why doesn’t a greater share of older Americans buy annuities?
A loss of liquidity appears to be the biggest deterrent, according to a recently published report from AARP. The study is based on a survey of 1,750 worked ages 50 to 75 and 670 retirees ages 59 to 75 conducted in 2010. More than 80 percent of the workers and 75 percent of the retirees said they would not select a life annuity option from their key retirement plan because “I want to keep the money around in case there is an emergency.”
Older Americans also express doubts that an annuity would be their most strategic option, according to the AARP survey, which found that 79 percent of workers and 74 percent of retirees would not select a life annuity because “I don’t think the lifelong monthly payments would be a good value for the money.” The older Americans also cited “I may not live long enough to make the monthly payments worthwhile.”
More than three-fourths of workers and two-thirds of retirees felt they could realize a better return on their investment by managing the money themselves. A lack of information about the plans was cited as a reason by 75 percent of works and 54 percent of retirees.
The AARP study suggests that many older Americans plan to work longer as an alternative strategy for ensuring their financial security in retirement. About 30 percent of older Americans participating in the survey said they plan to work to age 70 or older.