In what could be a boon to the annuity industry, a report released Friday by the Government Accountability Office said that delaying Social Security and purchasing an annuity may be the only way to ensure solvency in retirement.
“Financial experts GAO interviewed typically recommended that retirees … convert a portion of their savings into an income annuity to cover necessary expenses, or opt for the annuity provided by an employer-sponsored DB pension instead of a lump sum withdrawal,” the report states.
Entitled Retirement Income: Ensuring Income throughout Retirement Requires Difficult Choices, it notes that experts also recommend that individuals delay receipt of Social Security benefits until reaching at least full retirement age and, in some cases, continue to work and save.
The GAO was asked by Sen. Herb Kohl, R-Wis., chairman of the Special Committee on Aging, to review the following:
- Strategies that experts recommend retirees employ to ensure income throughout retirement.
- Choices retirees have made for managing their pension and financial assets for generating income.
- Policy options available to ensure income throughout retirement and their advantages and disadvantages.
“To help people make these often difficult choices, policy options proposed by various groups concerning income throughout retirement include encouraging the availability of annuities in DC plans and promoting financial literacy,” the report adds. “Certain proposed policies seek to increase access to annuities in DC plans, which may be able to provide them at lower cost for some individuals.”
However, the report goes on to note that some pension plan sponsors are reluctant to offer annuities for fear that their choice of annuity provider could make them vulnerable to litigation should problems occur.
"I think the report is a validation of what the industry has been saying for some time, both in the qualified and non-quealified space," said Cathy Weatherford, CEO of the Insured Retirement Institute. "Defined benefit plans have gone the way of the dinosaur. All of the reseach conducted by the GAO for this report shows Americans need to save more, fully consider income in retirement and better edcuate themselves fromm a financial standpoint."
“This report demonstrates that for many people, annuities represent more than a choice – they are a necessity,” American Council of Life Insurers (ACLI) President and CEO Dirk Kempthorne said in a statement. “An annuity is an insurance contract under which a life insurer guarantees to make payments to a person over a specified period or their lifetime. In other words, it provides a paycheck for life.”