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Study Answers: Who Favors Immediate Annuities?


A recent study, conducted by the Employee Benefit Research Institute, set out to determine just which investors are looking to put their retirement savings into immediate annuities and which are looking elsewhere. You see, employer sponsored retirement plans have been rapidly declining, causing an uptick in interest in alternate annuity income options. But American investors aren’t all jumping on the annuity band-wagon. So, who is it that wants immediate annuity products? Here’s what they found out, as reported in a recent article from BenefitsPro.

Researchers used data from the Health and Retirement Study to discover how savings effects the preference for immediate annuities among retirees aged 65 and over. After analysis, they determined that purchasers of these financial tools tend to be at either the high end or low end of the asset spectrum. While those with the least amount of assets definitely favor immediate annuities over those in the middle of the savings distribution, it was those individuals with the highest — those in the top 20% in wealth distribution — that actually favored them the most.

The analysts offered three possible explanations for this effect:

  1. People at the bottom of the savings distribution are most likely to run out of money during retirement. Their strong preference for immediate annuities is probably due to the guaranteed lifetime income that they won’t outlive.
  2. On the opposite end of the spectrum, people at the top end of the savings distribution often expect to live longer, making an annuity product a “safe bet” in terms of recouping their initial investment and then some. Additionally, they can afford to purchase an annuity after leaving a financial legacy for their heirs.
  3. Those who fall in the middle range are usually more uncertain about whether their retirement savings will be adequate, and often want to keep their savings close in case of an emergency situation. Many also see more of a chance of leaving some kind of financial legacy for their families if they put their money elsewhere.

The study also found a clear preference for partial annuitization, as opposed to full. “When compared with their current financial situation, only 16.5 percent of retirees age 65 and above preferred full annuitization of their assets, compared with 43.0 percent who preferred a one-quarter annuitization.”

The whole “don’t put all of your eggs in one basket” strategy still holds strong apparently.

Written by Rachel Summit

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