Americans Express Interest in Lifetime Income Options
While a majority of Americans say they are confident that they will have sufficient income in retirement, large shares also express interest in purchasing a financial product that would provide them with a guaranteed monthly income in retirement, according to the results of a survey conducted by the Teachers Insurance and Annuity Association of America (TIAA).
The survey of 1,000 U.S. adults conducted in June 2016 showed that 58% feel confident that they can successfully turn their retirement savings into income after they stop working, and that only 35% are concerned about running out of money in retirement. Researchers pointed out, however, that this confidence could be misplaced, as only 46% of respondents indicated that they know how much they have saved in their retirement savings accounts, and just 35% said they know how much monthly income they will have in retirement.
The results also provided evidence that Americans are underestimating their retirement income needs. Of the respondents who are not currently retired, 41% said they are saving 10% or less of their income for retirement, and 63% estimated that they will need less than 75% of their current income to live comfortably in retirement. In addition, of the 28% of respondents who are not retired and indicated they are not saving anything for retirement, just 47% said they are worried about not having enough money in retirement.
Yet when asked to name the retirement plan feature they consider to be most important, 49% of respondents said the plan should provide a guaranteed monthly income in retirement. Moreover, when offered a choice among several lifetime benefits, 68% of the adults surveyed chose a retirement “paycheck” that lasts as long as they live over options like an unlimited lifetime airline ticket (9%), a new car every year for the rest of their life (9%), or unlimited dining out (4%). However, only 43% of respondents said they are willing to commit a portion of their retirement savings to a choice that would allow them to receive a monthly payment for life, and 41% said they are unsure whether their current retirement plan provides an option for lifetime income.
When asked to identify the specific sources of income they expect to draw from in retirement, 73% of respondents said they expect to rely on Social Security; 29% said they anticipate receiving payments from a defined benefit pension plan; 54% indicated they intend to make withdrawals from retirement accounts like 401(k)s, 403(b)s, or IRAs; and 14% said they plan to use annuities to generate an income.
The survey also found that while most respondents expressed a desire to have reliable monthly income in retirement, the vehicles they expect to use to generate that income differ by generation and by income level. For example, 84% of the baby boomer respondents said they plan to rely on Social Security for retirement income, compared to 69% of Gen X and 61% of Gen Y respondents. By contrast, the Gen X and Gen Y respondents were more likely than the baby boomers to say they plan to make withdrawals from retirement accounts.
Of the generations surveyed, millennials were less likely to say they are familiar with annuities (20%) than Gen Xers (38%) and baby boomers (41%). However, millennial respondents were more likely than older respondents to say they would be willing to commit a portion of their retirement savings to a product that will provide them with a monthly payment for life.
Broken down by income, the survey showed that respondents with incomes over $100,000 per year were more likely to say they expect to draw from a wide array of income sources than people with incomes under $50,000 per year. For example, 69% of respondents at the higher income level said they intend to withdraw savings from a retirement plan, compared to 41% of respondents at the lower income level. The higher income respondents were also more likely than their lower income counterparts to say they expect to receive payments from a pension plan (40% vs. 19%) or income from annuities (27% vs. 10%).