Retirees with the most and the least assets saved are more likely to buy annuities than those in the middle of the savings distribution, a report by EBRI found. The report also found that the less of their income they can annuitize, the better, as far as survey respondents were concerned.
Sudipto Banerjee, a research associate at EBRI, offered three possible explanations for the U-shaped trend in annuity preferences. First, people with fewer assets are more likely to run out of money in retirement and are more inclined to choose annuities, he wrote in a Feb. 8 issue brief.
(Related: DOL Posts Indexed Annuity Fiduciary Rule Exemption Draft)
Wealthier people tend to be healthier and live longer; those at the top end of the savings distribution are planning for longer lifespans and can afford annuities even after planning for a financial legacy to leave heirs, he wrote.
Finally, the people in the middle are facing more uncertainty in retirement and may be reluctant to part with savings for an annuity, according to Banerjee.
EBRI used data from the 2013 Internet Survey component of the biennial Health and Retirement Study for its report. The main survey collects information on income from various sources; the 2013 supplemental survey included questions about consumer preferences for immediate annuities.
Respondents were presented with four different scenarios: their current financial situation, based on their current monthly earned income, annuity income from Social Security and pensions, the value of their total savings, and the net value of their home; and their potential financial situation if they were to annuitize all, half or a quarter of their savings. Respondents were asked to choose which scenario they preferred.
Respondents were 65 or older, with at least $1,000 in savings. The total sample size was 950.
Just over 16% of respondents in the lowest income quintile said they preferred full annuitization of their retirement assets, compared to 12% of those in the third quintile and 21% of those in the top. EBRI found a steeper drop in interest in half annuitization, with 24% of those in the third quintile choosing this scenario, compared to 39% of the first and fifth quintiles.