Even though defined benefit plans have declined and interest in alternate annuity income options has risen, that doesn't mean that Americans have flocked to buy their own annuities.
In fact, among those interested in annuities, purchasers tend to be at the high and low end of the asset spectrum, according to the Employee Benefit Research Institute.
Using data from the Health and Retirement Study, an EBRI analysis sought to discover the effect of savings on the preference for immediate annuities among retirees aged 65 and over.
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The study found that people at the lowest and highest levels of the savings distribution, those with the least and most assets, have a stronger preference for immediate annuities than people in the middle of the savings distribution.
However, the amount of savings has a greater positive effect on preference for annuities only for those in the highest savings quintile—those in the top 20 percent in the wealth distribution.
Three possible explanations are offered by EBRI for this effect.
First, people at the bottom of the savings distribution are very likely to run out of money in retirement; their interest in finding a source of income that they won't outlive is probably responsible for their stronger preference for immediate annuities.
Second, people at the top end of the savings distribution probably expect to live longer; in addition, they can afford to purchase annuities even after leaving a financial legacy for their heirs.
Third, people in the middle range are usually more uncertain about having adequate retirement savings and thus more likely to hang on to their savings against unexpected needs, and possibly also in the hope of leaving some kind of financial legacy for their heirs.
In addition, the study found that there's a clear preference for partial, rather than full, annuitization. It said, "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."
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