Pensions Engender Stability, Study Shows — But Are Not Widespread

By ASPPA Net Staff • September 29, 2016 • 0 Comments
Defined benefit plans can play a key role in providing financial stability in retirement, but their effects may not be widespread, according to a recent study.

In “It’s All About Income,” the Insured Retirement Institute (IRI) studied 806 Americans age 65-80 who retired at least five years before and had at least $50,000 in investible assets.

Half of the retirees in the study have between $100,000 and $500,000 in investable assets (excluding real estate). The IRI found that more than 40% of the retirees studied derive at least half of their total income from pensions.

And it would take a lot to replace that kind of pension income with an annuity, the study says. The IRI found that those whose pensions provide at least half of their income would need to invest as much as $485,000 in a life-only annuity to replace that level of income. Still, around 30% of those studied receive income from an annuity, and two-thirds of those retirees receive life or life-contingent payments.

The retirees’ general optimism is notable. Sixty percent filed for Social Security benefits before age 65, even though that meant receiving benefit payments smaller than they would otherwise have been.

Fewer than 10% of them have worked, or planned to work, during retirement, and only one-third planned on income from their spouse when they retired. But actual retirement threw a bit of cold water on many of them, the IRI found — after retiring, 90% made plans for income from their spouse.

And the retirees had to grapple with large expenses: nearly half spent at least $25,000 out-of-pocket for non-medical purposes, such as home repairs, and 40% experienced a major health-related event such as a stroke or heart attack.

Still, 80% said their financial condition during retirement was as good or better, than they had expected, and 70% were not very or not at all concerned about running out of money during retirement. And less than half are concerned about inflation: 40% of those with less than $100,000 in retirement savings said they are, and even fewer — 20% — of those with savings greater than that said it is a concern.

But the study suggests that access to pension benefits — and therefore, such results — is not widespread. It says that just under one-quarter of private sector workers are covered by a DB plan.