Retirement income remains worrisome, but annuities boost confidence, survey finds

When it comes to Americans’ attitudes about financial security in retirement, it appears the cup may be half empty, according to an authoritative report on the subject.

The Alliance for Lifetime Income in June 2023 released its annual Protected Retirement Income and Planning (PRIP) study, which examines consumers’ attitudes about retirement, their planning strategies and how annuities can help protect retirement portfolios. The study also surveys financial professionals and includes their sentiments in the results.

The annual study finds that more than half of Americans between the ages of 45 and 75 feel they lack adequate retirement savings to last the remainder of their lifetimes, and 32% doubt they’ll have enough to cover their essential monthly expenses. The study found that 51% of consumers approaching retirement age and those who’ve already reached it aren’t overly confident about having truly golden years.

Why worry about retirement?

Survey respondents listed several reasons that contribute to their lack of confidence as they look toward the future. Some primary reasons they cited for their bleak outlook include the market downturn of 2022 and ongoing market volatility, the lingering aftermath of the COVID-19 pandemic on the economy and stubborn inflation numbers.

Financial experts cite several reasons why Americans remain apprehensive about retirement. A chief concern is the steady increase in the cost of living. As Americans look toward the future, they envision a future of higher costs for housing, health care and everyday expenses that cover everything from food to fuel to having fun. Compared to previous generations, Americans also are living longer, and that stokes fears of outliving their savings.

The results of the Alliance study are less optimistic than the findings of a separate but similar survey conducted recently by the Employee Benefit Research Institute. The EBRI found similar motivations for the jitters that Americans are having about retirement security. The EBRI reports that in 2023, 64% of workers were confident in their retirement planning, which is down from 73% who expressed confidence the previous year. Workers worry that inflation and market swings will force them to work longer than they had anticipated to make ends meet and provide enough income once they retire, the EBRI study says.

“We’re about to hit Peak 65 next year, a historic demographic event when the largest number of Americans ever will reach 65, and far too many people still don’t have the savings and protected income they need to retire comfortably,” said Jean Statler, CEO of the Alliance for Lifetime Income. “The retirement savings crisis is about to become a retirement income crisis, so we have to continue to do everything we can to help people better prepare – especially those close to retirement.”

How much do I need for retirement?

How much someone needs for retirement varies widely and depends on each person’s unique circumstances. Some of the factors to consider are your lifestyle expectations, the age you wish to leave the workforce and your future sources of income. While there is no one-size-fits-all answer and individual circumstances and goals differ, there are some general guidelines to consider.

To develop a personalized retirement savings goal, you can consider the following steps:

• Estimate your retirement expenses: Take the time to evaluate your expected expenses in retirement, including housing, health care, daily living costs, travel and any other activities or hobbies you wish to pursue. Creating a comprehensive budget can help estimate your retirement income needs.


• Assess potential sources of income: Identify the potential sources of income you anticipate having during retirement. This may include Social Security, pensions, income from 401(k) plans and individual retirement accounts, rental property proceeds or part-time work. Understanding these sources of income will help determine the gap that needs to be covered by your retirement savings.


• Consider inflation: Rising prices and inflation can eat away at retirement savings. Inflation erodes the purchasing power of money over time, so it's essential to factor in a reasonable estimate of future inflation rates when calculating your retirement needs.


• Seek professional guidance: Consulting with a financial professional can provide valuable insights that address your specific situation, goals and expectations. They can help analyze your financial circumstances and risk tolerance to develop a personalized plan that will ensure you don’t outlive your income.

Remember, it's crucial to start saving for retirement as early as possible to take advantage of compound interest and allow your savings to grow over time. Regularly reassess your retirement goals and adjust your savings plan accordingly. While estimating the exact amount needed for retirement can be challenging, careful planning and diligent savings can help you work toward a financially secure retirement.

What is an annuity? Why are they growing in popularity?

Annuities are essentially a contract between an individual and an insurance company, which agrees to provide regular income payments to the person for a set number of years or for as long as they are living. Payments from immediate annuities start right away, while deferred annuities grow tax-deferred and begin paying out a predetermined point in the future. Unlike variable annuities, which fluctuate with the market, income streams from fixed and immediate annuities are guaranteed and won’t lose money based on the performance of the markets.

Often, annuities supplement other income sources, such as Social Security, by providing a guaranteed income. The Alliance for Lifetime Income study found that uncertainty among older Americans has increased the demand for protected and reliable sources of income, such as annuities.

“Consumers who are protected by an annuity and/or pension have a significantly more positive outlook on their retirement prospects. And, 93% of consumers who protected their portfolio with an annuity in 2022 are satisfied with their investment choices,” the survey says. In fact, sales of annuities increased 23% in 2022 over the previous year, according to a Life Insurance Marketing and Research Association (LIMRA) survey. The LIMRA survey shows that the $312 billion in annuities sold in 2022 is 18% higher than the previous record of $265 billion set in 2008.

The Alliance for Lifetime Income study found that consumers at or near retirement age are skittish about keeping their nest eggs exposed to the swings of the stock market, and 32% of investors made changes to their investments. They chose to reduce risk by shifting portions of their portfolios to more conservative financial vehicles, including annuities. The survey found that 93% of those purchasing annuities were satisfied with their decision and the protection they provide to their retirement savings.

One discouraging finding of the survey is that 73% of consumers said they are counting on Social Security for retirement income, and 40% indicated that Social Security will be or is a critical part of their retirement funds.

“For many Americans, Social Security alone will not cover day-to-day living costs,” says Jean Chatzky, education fellow at the Alliance’s Retirement Income Institute, and founder and CEO of HerMoney.com. Chatzky, commenting on her organization’s survey results, added that “Social Security only replaces about 40% of pre-retirement income, which leaves a large gap that, for past generations, a company pension used to cover. Since running out of money in retirement has consistently been one of the top fears of retirees, having enough protected income to pay for our basic expenses in retirement is key.”

What are the benefits of an annuity?

Some key benefits of annuities are that they can provide for lifetime income, protection from losses in volatile markets and tax-advantaged growth. Annuities also offer several customization options and death benefit provisions to pass on to beneficiaries.

True to their name, immediate annuities provide a stream of reliable income that begins right away. Consumers looking to ensure a stream of guaranteed income in the future often opt for deferred annuities that allow funds to grow over time, and the income stream begins at a predetermined date in the future.

Older Americans don’t want to wait for markets to recover if their investments tied up in securities drop in value. That’s why fixed and fixed index annuities are an attractive option. They can ensure that income payments are stable, despite market performance, and their principal is safeguarded from losses. Also, tax-deferred growth means that funds aren’t taxed until they are turned into an income stream, and there are no annual tax implications. Annuities also can be customized to best fit the financial goals and income needs based on your unique circumstances. For example, a death benefit rider can ensure that part of an annuity’s value can be passed on to beneficiaries. Another customization option can deal with long-term care planning and allow for the principal to be used for potential health care costs.

It's important to consult with a financial professional who can explain the various considerations, options, fees, terms, conditions and limitations of annuities. That way, you can ensure that annuities are an appropriate part of your overall retirement income planning strategy and objectives.