Fixed annuities and other income products are figuring into the financial plans of a significant share of baby boomers, who are growing increasingly concerned about having enough money for a comfortable retirement.
“Establishing a fixed-income arrangement resonates with retirees,” concludes a comprehensive new study by Millionaire Corner. The research focuses on decisions surrounding employee-sponsored 401(k) plans, which are emerging as the nation’s primary vehicle for saving for retirement. The study, “The IRA Rollover Market 2011,” is based on surveys of 940 individuals who had at least $5,000 saved in an employee-sponsored retirement plan and were leaving their jobs.
Upon retirement, an employee can handle assets held in a 401(k) retirement plan in several ways. The funds can be left in a 401(k) or rolled into an IRA, a different type of tax-sheltered retirement product. Retirees can also begin making systematic withdrawals from the plan or can use the funds to set up a steady stream of income through a fixed annuity or other fixed-income arrangement.
Millionaire Corner research shows that fixed-income arrangements appeal to investors who worry they might outlive their money, or that another economic downturn could cut into their income. At the same time, investors seek products that are somewhat liquid, charge reasonable fees and keep pace with inflation.
Overall, 10 percent of investors surveyed in 2011 put all or some of their 401(k) funds into some sort of arrangement designed to pay them regular income. The most common approach, used by 43 percent of survey participants, is scheduled withdrawals from their 401(k)s. These investors will systematically “spend down” their accounts. Another 31 percent say they purchased a fixed annuity or other annuity product and 22 percent say they invested their 401(k) funds in a portfolio of fixed-income securities and plan to harvest the interest.
Of the investors who purchased an annuity, 45 percent say it was an option offered by their 401(k) plan. Another 20 percent of the investors say they opted for an annuity product offered by the financial firm providing their 401(k) plan. One-third of the investors bought the annuity from a company not connected with the plan.
Post-recession, investors are expressing greater anxiety about retirement and less confidence in how their investments will perform. This growing distress has enhanced appreciation for the services provided by financial professionals. Half the investors who set up an income arrangement sought help from an advisor. The likelihood of seeking professional advice increased with wealth. Sixty percent of investors with a 401(k) balance of $100,000 or more used an advisor to help establish an income stream, compared to 43 percent of investors with a 401(k) holding $50,000 to $99,000.