How Default Income Annuities Can Help Protect Against Running Out of Retirement Income
Today, there are few privately managed retirement plans that provide an income to retirees through the end of life. To protect retirees from running out of money in old age their employers could automatically invest a modest amount of retirees’ 401(k) earnings in deferred income annuities (DIAs) that would guarantee an income for life. Horneff, Maurer, and Mitchell’s study shows that both men and women, regardless of educational level, would benefit from this type of default investment by their employer. The result would be more retirement income and improvements to overall well-being for retirees as they age. The authors discuss the uncertainty of retirement, present their research findings, and describe the ways that their idea would be beneficial to retirees.
First, the researchers discuss the uncertainty around aging and retirees’ increasing concern about having enough retirement savings to last until the end of life. Since they do not know how long they will live, retirees have no choice but to plan how to spend down their savings as they age. The uncertainty of how long retirees’ lives will last can lead to self-tightening and conservative spending habits that negatively impact their well-being and sense of security. Policymakers are also concerned with the pace at which retirement savings is depleted and the real-life consequences if retirees have to rely solely on Social Security and Medicare until the end of life.