As employer-sponsored savings vehicles like 401(k)s become a major source of retirement income for millions of Americans, personal biases can have an outsized impact on retirement security.
Lifetime Income & Retirement Security
As defined contribution plans continue to replace defined benefit plans, retirees face substantial financial market risk to their non-guaranteed retirement savings. Researchers at Charles River Associates demonstrate that adding a deferred annuity such as TIAA’s Traditional Retirement Annuity (TIAA Traditional RA) to a retirement income portfolio improved the portfolio’s overall financial performance over the period studied.
Since annuitants and non-annuitants share the same top financial priorities—each of which is addressed by annuitization—why do some retirees choose to annuitize while others do not?
Near-retirees typically share the same top financial priorities for retirement—all of which are consistent with annuitization. So is there a disconnect between priorities and intentions among those likely to not annuitize?
Does the expectation of employer-provided health insurance in retirement encourage faculty members to retire earlier and save less than faculty who do not expect to receive this benefit?
Variable annuities with guaranteed minimum lifetime withdrawal benefits (VA/GLWB) offer retirees longevity protection, upside exposure to equity markets, and access to savings in case of emergencies. Despite these benefits, few researchers have explored how risk-averse retirees might value VA/GLWBs.
Hybrid retirement plans that combine the best features of defined benefit and defined contribution plans can provide an efficient and equitable method of ensuring retirement security for workers. Co-operative pension structures also enhance retirement security through risk pooling and leveraging economies of scale. Yet most U.S. private sector workers are not covered by these types of plan design. The TIAA-CREF system, which began in 1918 and covers millions of workers in the non-profit sector, provides an example of a plan design with features of a hybrid co-operative pension.
States and localities – which employ about 14% of the U.S. workforce1 – continue to face the residual effects of tax revenue decreases and pension fund investment losses resulting from the 2008-2009 recession. Coupled with these relatively recent challenges are longer-term budgetary pressures, shifts in workforce demographics, and changes in typical retirement benefits across all sectors of the economy.