America is facing a retirement crisis. For the first time in history, an entire generation is facing the real possibility that it could outlive its retirement savings. The Baby Boomers have enjoyed a level of affluence, freedom and security for most of their lives that previous generations only dreamed of. But now it’s time to pay the piper. A study conducted by Allianz Life Insurance Company of North America a few years ago reflected a pessimistic attitude towards retirement by many Boomers who feel unprepared.

Study Results

The Allianz study revealed that over 90% of respondents feel that there is either a mild or severe retirement crisis in America, and 100% of those with lower incomes felt this way. Half of those age 44-54 said that they felt unprepared for retirement, and were wondering when or even if they could retire at all. Only a quarter of those with lower incomes said that they felt at all financially prepared for retirement. Almost 60% of respondents were worried that their savings would be inadequate and nearly half were concerned that their nest eggs would not be able to cover their basic living expenses. More than 75% of those with lower incomes had this fear. (For more, see: Retirement Savings: How Much Is Enough?)

One of the most telling findings in this study was that nearly four-fifths of respondents aged 44-54 said that they were more afraid of outliving their income than they were of death, and the percentage was slightly higher for those who have children or other dependents. Forty to 60% of all respondents also had serious doubts that they will get the income that they are due from Social Security.

Of course, the findings in this study came in the wake of the subprime mortgage meltdown in 2008, and the respondents’ attitudes were shaped accordingly. The study took a poll among respondents asking what they now wanted from their investments and the following list of characteristics is ranked in the order of their popularity: (For more, see: Retirement Planning in a Changing World.)

  1. Stable, predictable retirement standard of living
  2. Guaranteed income stream for life
  3. Guaranteed not to lose value
  4. Protect against market downside
  5. Don't think about, stable, predictable

The Annuity Solution

Although they didn’t realize it, Boomers were describing the exact characteristics of an annuity with the factors that they listed. Annuities can provide guaranteed lifetime income with no risk to principal and safety from market losses. There are several types of these contracts available, but those who wish to begin receiving income now can purchase an immediate annuity that will begin payments within one year of contract purchase. This vehicle will calculate a monthly payout that is based upon the annuitant’s life expectancy (or joint life expectancy for married couples) that will be paid until death, even if the annuitant collects more than the entire amount of the contract plus its earnings.

Annuities were originally designed in order to protect against superannuation, or the risk of outliving your savings. These unique instruments are also generally exempt from probate and creditors, and they have several different payout options, including single and joint life (as mentioned previously) or a single or joint life with period certain, such as 20 years. This ensures that if the annuitant(s) die(s) before receiving 20 years’ worth of payments that a beneficiary will receive the balance. (For more, see: What is a Longevity Annuity?)

The Bottom Line

The study that was conducted by Allianz in the wake of the subprime mortgage meltdown clearly shows that a large percentage of Americans are looking for guaranteed retirement income that will last as long as they will. Immediate annuities can provide exactly what they want in many cases and also offer other benefits such as tax-deferred growth. For more information on annuities and how they can benefit you, consult your financial advisor. (For more, see: Better for Retirement: Dividend Stocks or Annuities?)

Want to learn how to invest?

Get a free 10 week email series that will teach you how to start investing.

Delivered twice a week, straight to your inbox.