Retirement insecurity: Pre-retirees less confident they can cover basic living expenses

A new survey from LIMRA underscores what many other studies have found: Americans are not feeling confident about their retirement savings. In a release entitled “It’s No Longer Your Parents’ Retirement,” LIMRA researchers said that workers today are concerned that their households will not receive enough lifetime-guaranteed income to cover basic living expenses in retirement.

The study noted the long-term movement away from pensions and toward other types of retirement plans: 61% of pre-retirees said they expect a defined contribution (DC) plan to be a top retirement income source, with only 27% saying a traditional defined benefit (DB) pension plan is likely to be a top retirement income source. In comparison, only 8% of currently retired respondents in the survey said DC plans are a top income source, while 38% said a DB pension was a top income source.

The report also said that less than one quarter of workers under 50 will have access to a pension plan when they retire. “The ongoing decline in pensions could partly explain why workers feel they will not have enough income, but other factors like uncertainty about Social Security benefits, market volatility, and the rising cost of living, are undoubtedly playing a role,” said Matt Drinkwater, corporate vice president of annuity and retirement income research at LIMRA.

Future financial insecurity

The LIMRA research found that overall, 60% of Americans surveyed are confident that their savings and investments will last until at least age 90. Not surprisingly, those with more assets show more confidence: 51% of those with $2 million or more in household investable assets say they are confident their savings and investments will not run out before age 90. Of those with $100,000 to $249,000 in assets, only 12% say they are confident in their resources up to age 90.

Related: Why work past retirement age? 60% of older workers have less than $500K in savings

According to the release, LIMRA research has seen a drop in the proportion of pre-retirees who feel they will receive enough from all lifetime-guaranteed sources to cover all of their basic living expenses throughout retirement for three straight years and in four of the last five years ― going from a high of 58% in 2017 to 44% in 2022.

A pitch for alternatives 

The study makes the case that annuities may be a good alternative option when Americans consider retirement savings. The researchers said they found workers overwhelmingly agreed that lifetime-guaranteed income, a feature of annuities, can provide peace of mind.

The release said there are different strategies, such as delaying claiming of Social Security benefits before age 70, but that purchasing individual annuities represent a solution that is growing in popularity.

“LIMRA research shows interest in annuities had been level or down for much of the last decade, reaching a low of 33% in 2018,” the release said. “In 2022, for the first time, a majority of workers (51%) said they would consider converting a portion of assets into a lifetime-guaranteed annuity in retirement. This increased interest in the concept of annuitization is likely driven by the realization that they won’t have enough income from Social Security or pensions to cover basic living expenses in retirement.”

Drinkwater said that the trends suggest that annuities will continue to become more popular with workers as they consider their retirement options. “Ultimately, linking annuities with the growing need for lifetime-guaranteed income and the peace of mind it can provide will propel growth of these products,” he said.