Annuities could play an important role in helping members of the “Me Generation” stretch out their retirement savings.
Financial experts talked about how annuities could help boomers, and how to improve annuities to make them more attractive to boomers, here at a seminar sponsored by Barclays Global Investors, San Francisco.
“Annuities are a very undervalued product,” Olivia Mitchell, a professor of insurance and risk management at the University of Pennsylvania, told seminar attendees. “There are good ones and bad ones, but in principle, it [the product] is very important.”
Reverse mortgages could help some boomers finance their retirement, and working a few years longer than they might be expecting also could help, Mitchell said.
If Americans in the median wage quintile want to retire at age 62, they will need to save about 17% more to generate adequate retirement income, but they will need to save only 7.7% more if they retire at age 65, Mitchell said.
But Mitchell said immediate annuities also can play an important role in helping boomers get the most out of their retirement savings.
Many financial planners and advice columnists are skeptical about annuities, but critics who complain about annuity pricing are overlooking the fact that immediate annuity purchasers tend to live longer than other retirees, Mitchell said.
Simply looking at an ordinary mortality table might suggest that annuity purchasers will be getting an average return of 81 cents on the dollar, but looking at an annuity survival table shows that the real return is likely to be about 93 cents on the dollar, Mitchell said.