Annuities and Retirement Happiness
In a continuation of an earlier post, we have another study on how guaranteed income and annuities increase overall retirement happiness. The study focuses on how some portion of ‘annuitized’ assets increases overall happiness.
It seems that when people eliminate the stress and worry of ever running out of income, their overall peace of mind increases measurably.
The full study, by the firm TowersWatson, is available for download here.
Many Americans consider annuities as illiquid and expensive and thus have avoided them in the past, even as research has shown that the security provided by annuities boosts retirement satisfaction.
A 2003 study found that retirees with a higher percentage of annuitized income were happier on a cross-sectional basis and maintained higher levels of satisfaction over time than their less annuitized counterparts.
A 2005 study found that retirees receiving annuities from defined benefit pensions were happier than those without pensions and those with only a defined contribution plan.
Retirement satisfaction has steadily declined over the last decade.
Satisfaction is highest among those with high levels of wealth and income who are very healthy and annuitize their income.
Among retirees with similar wealth and health characteristics, those with annuitized incomes are happiest.
Annuities provide the biggest satisfaction boost to retirees with less wealth and those in poor health.
Despite variations, the satisfaction effects of annuitized income and general decline in retirement satisfaction are long term and extend across all respondents.