A new survey analysis conducted by Harris Poll on behalf of MetLife
explores consumers’ attitudes and decisionmaking with regard to lump sums and
income annuity payments.
According to the “Paycheck or Pot of Gold Study,” of the
individuals who took a lump sum from a retirement plan, 63% made “major
purchases” within the first year. Nearly a quarter (22%) gifted a significant
portion of this money to an individual or a charitable group. A striking 21% of all participants who selected a lump sum at some point say they depleted it—taking just five and a half years on average to spend the dough; at the same time one in three with lump-sum cash remaining (35%) are concerned about the money running out while it is still needed.
Researchers warn that many in this camp quickly regret their choices
about lump sums: “Roughly one-third (31%) of those with major spending regret
their spending in hindsight, and 23% who gave money away lament their
generosity. Some have even had to subsequently cut back on other spending for
fear of running out of money.”
MetLife found that lump sum recipients “appear to have more
financial concerns than annuitants."
“Fifty-two percent of participants who chose a lump sum
concede that, if they had taken an annuity, their budget would be more
predictable, and 34% say it would be easier for them to pay for basic
necessities,” the survey finds. “In contrast, defined benefit (DB) and defined
contribution (DC) plan annuitants believe they are more financially secure
because of their annuity than their friends and neighbors who don’t have
guaranteed income from an annuity (58%), and a nearly equal percentage believe
they are more confident in their financial decisionmaking (56%).”
Like other analyses in this area, the MetLife research finds
lasting confusion around the basic
concepts of annuitization and lump sum distributions among plan
participants. People generally struggle with weighing the relative tax implications
of each approach, for example, or how to run in-depth comparisons about how
lifespan and health considerations should inform thinking around purchasing
various types of annuities versus taking lump sums. The research broadly makes the argument that employers have an important role to play in helping their employees understand and face longevity risk.
preferences for lump sums