Over one-third of retirees receive income from annuities, but for the majority, these instruments provide just 4% of their income, according to a report released Sept. 16 by LIMRA.
“The majority of current retirees relies primarily on pensions and Social Security to meet their daily expenses, with annuities making up only 4 percent of their income,” Jafor Iqbal, associate managing director of LIMRA Retirement Research, said in a press release.
Older retirees were most likely to receive income from an annuity. Almost half of those in their late 70s had an annuity, while just 19% of those under 65 did.
The study found that while household income has little effect on who receives annuity income, household assets are a strong indicator of who receives such income. The percentage of households with under $75,000 who rely on income from an annuity and those with more than $75,000 differed by just five percentage points.
When considering a household’s assets, 22% of those with less than $100,000 receive income from an annuity; 45% of those with between $250,000 and $499,000 receive income from an annuity. That number drops to 40% for those with more than $500,000.
The reason may come down to retirees’ relationships with financial advisors.
“Retirees’ household assets are a much better indicator of the likelihood of buying an annuity,” Iqbal said. “The larger the amount of assets, the more likely they have a relationship with an advisor and are able to buy investment products including annuities.
“The amount of income in retirement largely varies by how much a retiree receives income from employer-based pension, or whether the spouse also receives pension income, or whether both of the spouses receive full Social Security benefits,” he added. “Social Security benefits and income from pensions are the two biggest contributors of guaranteed income in retirement. For many retirees, these sources define their income status in retirement more so than how much they were receiving in income from their investments like annuities or other sources.
“All of our research has revealed that consumers are attracted to guarantees with their financial products—especially when the economy is performing poorly,” Iqbal said, adding that retirees are no different. “Our study found that 40 percent of retirees receiving income from annuities say their annuity income is guaranteed for life.”