Participants not Knowledgeable about Retirement Income Options

February 28, 2008 ( - A recent survey from The Spectrem Group finds that the majority of retirement plan participants are not familiar with products that can provide them with a guaranteed income stream in retirement.

According to a report on the survey findings, overall, 42% of retirement plan participants say they have given the issue of how they will arrange to have a regular income paid to them in retirement more than a passing amount of thought. Those over age 55 were the most likely to have spent time considering how to provide their retirement income (59%), while those under age 45 and those with account balances of less than $10,000 have spent the least amount of time considering the issue.

About half of all participants have done some research into the issue of arranging for retirement Income, and about half of this group have discussed the issue with a professional financial adviser or have read articles in the media, the Spectrem report said. Additionally, 40% each have discussed it with family or friends or conducted online searches regarding the topic. Those most likely to have researched the issue include older participants, men, and those with account balances or household incomes in excess of $100,000.

However, fewer than 20% of plan participants say they are very familiar with any of the four alternative approaches for arranging retirement income payments included in Spectrem’s analysis: systematic withdrawal plans; immediate pay annuities; structured bond portfolios; or laddering certificates of deposit. One-third say they are not at all familiar with systematic withdrawal plans or immediate pay annuities and over half are not at all familiar with structured bond portfolios or laddering certificates of deposit.

After seeing a definition of each of the four approaches, 45% of respondents say they would seriously consider a systematic withdrawal plan; 30% would consider laddering CDs; 24% would consider an immediate pay annuity; and 22% would consider using a structured bond portfolio. However, after seeing a statement of the drawbacks to each of these approaches in addition to the definition, the proportion who would seriously consider any of them dropped by one-third or more and half of the respondents did not select any of the four approaches as one they would seriously consider.

Spectrem also found that ensuring that a market or economic downturn does not cause a reduction in their retirement income is the objective ranked most important by plan participants, followed by minimizing the possibility of outliving the assets available for retirement.

Over 80% of participants indicated they see Social Security and a defined contribution plan balance as resources they will have in fund retirement income. In addition, 40% – 50% also reported that they will have a defined benefit plan, an IRA, equity in their primary residence, and after-tax household savings and investments available.

Among those with equity in residences, just 24% say they plan to sell their primary residence and 41% plan on selling their second or vacation home. Over 90% of those with investment real estate say this asset will contribute 40% or less of what they need to fund their retirement income.

The Spectrem findings were based on responses of a total of 402 retirement plan participants age 35 or older who were surveyed in the fall of 2007.