Too many times, saving for retirement becomes the sole focus of planning for a financially secure future. Building up a nest egg, while incredibly important, should never become myopic. Savers should, of course, be mindful of how much they’ve saved, and if it is an adequate amount. But they should also plan on how they are going to draw down their savings in a smart way that ensures their funds last the rest of their lifetime.
Guarding against depleting retirement funds too quickly is an essential objective when mapping out a retirement strategy. Recent research revealed that over one-third of participants in defined contribution retirement plans may run out of money in retirement if they don’t have a lifetime income option within their portfolio.
Additionally, 81 percent of respondents in a Morning Consult Survey reported they have concerns about having enough funds to last them through retirement. This real-world challenge is why 73 percent of pre-retirees ages 45 to 65 years old express interest in independently purchasing a guaranteed lifetime income product that pays out like a pension. Annuities remain attractive across the spectrum and especially with modest income earners.
These collective findings are all the more compelling as we come to the end of Annuity Awareness Month, which heralds the importance of lifetime income products and the flexibility they provide when crafting how to decumulate a nest egg. Given the wide variety of annuity products, it’s helpful for consumers to utilize resources that help them understand which type of annuity would work best in each unique financial situation.
Consumers aren’t the only ones whose interest is piqued regarding the importance of annuities. Lawmakers are looking for ways to encourage lifetime income products to ensure Americans are able to have a steady income in retirement. The U.S. Congress reaffirmed the importance of lifetime income when it passed legislation in 2019 and 2022 to make it easier for employers to include annuities in workplace retirement plans and simpler for savers and retirees to utilize annuities that fit their needs.
Personal retirement savings, in addition to Social Security, will be essential to ensure financial freedom and prosperity. Be on the lookout for more policy proposals that encourage the use and remove barriers to lifetime income products.
Kathleen Coulombe serves as the Senior Vice President, Federal Relations, for the American Council of Life Insurers (ACLI). In this capacity, she is actively involved in a multitude of public policy issues on Capitol Hill that impact the life insurance industry.
