By Josefina Flores Morales And J. Michael Collins


Retirement annuities offer guaranteed lifetime income that allows people to avoid outliving their savings. Given the shift from defined benefit pensions to defined contribution retirement plans over the last four decades, most people are in a position where they have to manage retirement assets as they age. One solution is for people to convert retirement assets into annuity contracts, meaning they are guaranteed payment on a regular basis for the contract term, which could be their lifetime. However, the uptake of private annuity contracts is relatively low (De Cervens 2020).

Old-Age and Survivors Insurance (OASI) from the Social Security Administration is one example of an annuity-like payment that provides lifetime guaranteed income for eligible Americans. This is a form of social insurance, and people are eligible based on paying into the payroll tax (FICA) over their working years. But Social Security payments are usually not enough to replace people’s earned income in their retirement years. As a result, people typically need other retirement income sources. Employer-based defined contribution plans (for example, 401(k) or 403(b) plans) have been on the rise. The SECURE (Setting Every Community Up for Retirement Enhancement) Act of 2019 made it more likely that defined contribution plans can offer annuity contracts for retirement income. However, the take-up of the annuity option depends on people’s prior knowledge and experience. It is important to understand how people have historically used annuities to be able to inform strategies to provide more people with an opportunity to explore annuities as part of their retirement plan.

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