Annuities Vie With Mattress Money

October 19, 2011

By Linda Koco
Contributing Editor, AnnuityNews

The tough economy is causing consumers to make some tough retirement savings choices — between annuities, other retirement plans, investments and mattress money, according to findings in a new online survey.

Only 8 percent of nonretirees said they own annuities, says Allianz Life Insurance Co., which released the results this week.

By comparison, nearly half (47 percent) of nonretirees said they participate in employer-sponsored retirement plans such as 401(k), 403b and 457 plans, the Minneapolis insurer says.  More than a quarter (27 percent) said they own stocks, bonds or mutual funds.

Later, when asked to react to several state-of-the-economy statements, a surprising 27 percent of nonretirees said the safest place right now for any money left over after paying expenses is “under my mattress.”

With annuity ownership at 8 percent and mattress money preference at 27 percent, it appears that annuities are minor league players in the retirement savings arena.

Different light

But another set of numbers from the Allianz study casts a different light on those figures.  These numbers show that a sizeable percentage of Americans are backing off of retirement savings altogether, not just annuities.

For instance, 30 percent of nonretirees told Allianz that they have either decreased the amount they are saving for retirement or have stopped saving altogether.  

That’s unsettling news to come right in the midst of National Save for Retirement Week, which this year runs from Oct. 16-22. The annual weeklong event started in 2006 as a time to increase public knowledge about retirement savings and to encourage employees to save and participate in employer-sponsored retirement plans.

It’s fair to say that among mattress-money advocates, annuity ownership is not likely to be considered a viable concept right now due to economic uncertainties.  The same could probably be said for saving through the retirement plan at work or a securities brokerage. These Americans just want to preserve what they have, even if it means their savings have no inherent upside potential and no tax deferral.

But those same individuals could become candidates for annuity purchase if they come to understand that annuities provide guarantees, including guaranteed retirement income.

The same could be said for the small but growing number of employer retirement plans with in-plan income annuity or “guaranteed payout” options.

That could be a worthy initiative of National Retirement Savings Week — in addition, that is, to educating the public about why and how to save for retirement in general and how to make the most of their employer-sponsored retirement plans.

Feelings about guarantees

The Allianz survey did sample how nonretirees feel about guarantees, and the results are eye-opening.  

When asked to rate several factors related to creating a more secure retirement, the most popular answer was “having a guaranteed stream of income in retirement” (86 percent), says the Minnesota insurer.

This was more important for those age 55 and up than for younger nonretirees, for females than males, and for marrieds than not-marrieds and college educated, according to the researchers.

That guaranteed-stream-of-income answer even outranked “having a 401(k)/403(b)/457 plan,” which drew a 71 percent response—this despite the fact that 47 percent of nonretirees said they already own such retirement plans. It outranked Social Security too (72 percent)—though, as might be expected, Social Security was “more important for those age 55+ than those younger,” the researchers say.

Similarly, nearly half (47 percent) of nonretirees rated a guaranteed stream of income as the top retirement need they have yet to acquire in order to feel more secure. This was rated higher among females than males and among those with a college education.

In fact, the nonretirees said that having a guaranteed income stream is more important than “a job that gives me a 401(k)/403(b)/457 plan” (27 percent) and “having a diverse portfolio of investments” (22 percent).

They don’t know what to do

“Our survey results are confirming that Americans want more guarantees in retirement but simply don’t know what to do to create financial certainty,” said Allianz Life President & CEO Gary C. Bhojwani in a statement.

His takeaway is that “more education is clearly needed about annuities and how they can help protect a portion of savings and provide steady, predictable income throughout a person’s retirement.”

Other relevant findings about nonretirees:

-- 23 percent said that, if an investment product existed that would charge fees that are double the typical investment fees but  would guarantee a constant stream of income in retirement, they would buy the product and pay the higher fees.

-- 28 percent said, "I wish I were more heavily invested in annuities than I am now."

-- 51 percent said the stock market's recent volatility has now made them question whether retirement savings vehicles such as 401k, 403b, or 457 plans are adequate ways to save for retirement.

-- Annuity ownership is more prevalent at the older ages. For example, 31 percent of nonretirees age 65 and up say they own an annuity, followed by 13 percent of those aged 55-64. But just 7 percent of 35-44 age group, and just 8 percent of the 45-54 group, own annuities.

-- Annuity ownership is equal between male and female nonretirees, with 8 percent of each group saying they own annuities.

-- Nearly 40 percent of nonretirees own no retirement or investment products of any kind.

The figures above reflect views of 800 nonretired adults age 18 and up in the contiguous U.S.A. Synovate surveyed them on behalf of Allianz from Aug. 30 to Sept. 1, 2011. Allianz provided survey details to InsuranceNewsNet.

Linda Koco, MBA, is a contributing editor to AnnuityNews, specializing in life insurance, annuities and income planning. Linda can be reached at [email protected].

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