The research tested participants’ knowledge and perceptions of three approaches to converting retirement plan assets into an income stream: payout mutual funds; variable annuities with a guaranteed minimum withdrawal benefit (GMWB); and the combination of mutual funds and fixed annuities (see “Finding the Right Vehicle,” “As Good as Annuity,” and “The Inside Story“)
Spectrem found that awareness of all three approaches was low: 37% for payout mutual funds and 41% each for the other approaches. Men were more aware of all three approaches than were women, and those with higher household incomes were more aware of all three than those with lower incomes.
None of the three alternatives is seen as a particularly attractive approach to retirement income. Payout mutual funds were rated attractive (i.e., 4 or 5 on a 5 point scale) by 15% of respondents; variable annuities with the GMWB feature by 22%; and the combination of funds and fixed annuities by 27%.
When asked which of these approaches makes the most sense for their own situation, 61% of respondents select the combination of mutual funds and a fixed annuity. The remainder split about equally between the other alternatives.
“How Do I Get There?”
Two-thirds of participants believe they will have income from a defined benefit plan when they retire; however, Spectrem believes some of them do not realize they are not covered by a DB plan. Another 22% own annuities which they will use to provide income. Those saying they will have income from real estate investments, a trust or some other source total less than 10%.
One-quarter of participants cannot identify any specific source of retirement income other than Social Security, and just 17% of participants expect that Social Security and the income sources they know about today will be sufficient to meet all of their income needs in retirement.
Spectrem found that two-thirds of participants age 50 or older plan to work until age 65 or longer—with the largest proportion indicating they will retire when they reach the age where they qualify for full Social Security benefits.
The report said individuals with household incomes of $50,000 or more annually expect that their retirement plan balances will be their largest asset when they reach retirement, while those earning less expect the equity in their home to be their largest asset.
The level of income participants expect to need to live comfortably in retirement also varies with current incomes. On average, those earning less than $50,000 will need 91% of their current gross income, according to the Spectrem report. This figure trends downward as household income increases, reaching 76% for those earning $100,000 or more.
Overall, 57% of participants expect to have less than $300,000 in total invested assets when they retire. Another 21% say they will have $300,000-$600,000; 14% will have $600,000 to $1 million; and 8% say they will have $1 million or more.
Spectrem surveyed 400 active retirement plan participants online during September and October.
“Participant’s Desire for and Understanding of Retirement Income Options” can be purchased here.
“Participant’s Desire for and Understanding of Retirement Income Options” can be purchased