Data & Research July 2, 2015

American Retirees Might Be Under-Annuitized

Logic would dictate that retirees would shift their retirement savings to annuity products, but this has yet to happen, a research paper says.
Reported by

The importance of annuity-like income as a share of income for aged families (those ages 62 and over) is the focus of a paper from the Center for Retirement Research at Boston College.

Contrary to a widespread fear caused by the shift from defined benefit (DB) to defined contribution (DC) retirement plans, there is little evidence that the annuity-like income share of total income over the past three decades has, in fact, fallen for aged families, especially for low-income older families, the paper finds.

For more stories like this, sign up for the PLANADVISERdash daily newsletter.

However, “Do Retired Americans Annuitize Too Little? Trends in the Share of Annuitized Income” contends that many middle- and high-income aged families would experience a jump in monthly income if they annuitized their wealth.

Pension annuities offer retirees a simple vehicle for insuring themselves against the risk of outliving their retirement savings, the paper says. As the U.S. workplace retirement system shifts to defined contribution (DC) pensions with lump-sum payouts, it seems logical to think retirees will shift their retirement savings portfolios towards annuity products in order to replace the guaranteed life income payouts that were once provided by old fashioned, defined benefit (DB) pensions. Such a shift has yet to occur, however.

Only a very small percentage (8%) of older workers and recent retirees with DC-type lump-sum payouts has purchased or intends to purchase an annuity with their retirement savings. Economists and experts on insurance agree that annuities can play a key role in providing stable retirement income that lasts for the lifetime of retired workers and their spouses.

NEXT: Most families receive a substantial portion of income in some form of annuity

For the average family headed by a person 62 or older, two-thirds of total income consists of some form of annuitized income—Social Security, public or private employee pensions, or annuities. Aged families in the bottom two-fifths of income distribution report a higher percentage of annuity income compared with families in the top three-fifths of the distribution. In the higher ranks of the income distribution, annuitized income flows account for a progressively smaller percentage of total family income.

Many explanations have been offered for the very small share of retirees who buy annuities. One reason is that most retirees already receive a substantial fraction of retirement income in annuity-like payments. Another is that many Americans nearing retirement do not have enough financial assets to make it worthwhile to purchase an annuity.

The researchers consider the 62+ or aged population as a whole, as well as different parts of the aged families’ income distribution from the early 1980s through 2009, drawing on survey data from the March Current Population Survey and the Survey of Consumer Finances.

Family income consists of annuitized income flows (primarily Social Security and pensions) and is measured as a share of families’ total money income. The definition of both annuitized and non-annuitized income has been expanded to include income flows not captured in the surveys, namely, health insurance subsidies and the housing services received by homeowners. The paper also considers the potential impact on aged families if they were to convert their wealth into private annuities.

“Do Retired Americans Annuitize Too Little? Trends in the Share of Annuitized Income,” by Barry P. Bosworth, Gary Burtless, and Mattan Alalouf, all with The Brookings Institution, can be accessed here.

Diversions July 2, 2015

Cities with the Most Hours in a Work Week

Who puts in the longest hours? Who has the longest commute? New York City Comptroller Scott Stringer says in a survey that it’s New York.
Reported by

How long is your work week? In a report from New York City Comptroller Scott Stringer, New York tops out at a 49.08-hour work week, followed by San Francisco, at 48.58. The results are no surprise to Blake Thibault, managing director of Heffernan Retirement Services, PLANADVISER’s 2015 Plan Adviser Team of the Year.

In fact, Thibault—who drives an average three hours a day to his office in downtown San Francisco—would welcome a commute of 4.57 hours a week. He calls a 1-1/2-hour drive a good commute. The distance from home to office? Nineteen miles.

For more stories like this, sign up for the PLANADVISERdash daily newsletter.

If there is an upside to a long commute, Thibault tells PLANADVISER it forces him to plan his day more creatively. “If you’re meeting with clients, it’s more challenging to maximize your working hours when you have to plan for being an hour or more on the road,” he says.

Thibault draws on a grab bag of techniques to combat the commute, from coming in earlier on days when he wants to get home for his kids’ sporting events, to listening to books on tape, and using car time to make client calls, or listen to TED talks and podcasts.

Evidence suggests that New York City residents work longer hours than those of other major cities, Stringer’s report says, with long work weeks especially common in certain professions. Staffers in the finance sector, on average, work the longest work weeks. New Yorkers also have longer average commutes than residents of any other major city. The combined hours give New Yorkers the longest work week of anyone in the country.

In addition to actual work time, all American full-time workers, on average, spend about 25 minutes getting both to and from work each way, for a weekly total commuting time of 4 hours, 11 minutes. The average weekly commuting time for all full-time workers has been growing consistently, increasing by almost one-half hour since 1990. In 2013, the combined work and commuting week for U.S. full-time civilian workers was 47 hours. In the ten cities with the longest work week, the number hovers between 47.23 and 49.08 hours.

The Comptroller’s Office evaluated usual work hours and commuting time in the 30 largest cities in the U.S. Overall, full-time workers in those cities work about three minutes fewer per week, on average, than workers elsewhere in America, but they spend about 10 minutes more commuting. The difference in the length of the combined work week between the big cities and the rest of the country may seem trivial, but the averages mask considerable variation among those cities themselves.

The ten longest weeks in the U.S., combining hours worked and commute time are:

  1. New York: 49.08
  2. San Francisco: 48.58
  3. Washington: 48.39
  4. Houston: 48.18
  5. Fort Worth, Texas: 48.01
  6. Chicago: 48.01
  7. Boston: 47.36
  8. Charlotte, North Carolina: 47.35
  9. Baltimore: 47.25
  10. Seattle: 47.23

«