1 in 5 people exhaust their lump sum DC pay-out in 4.5 years. What you can do to not be one of them.

A Growing Retirement Regret

With pensions less common in the workplace, retirees are increasingly looking to annuities, financial products that offer a guaranteed income stream for life, to provide financial security through their retirement.  In 2022, 13% of people who took a lump-sum from their defined contribution (DC) plan, like a 401(k) or 403 (b), wished they took guaranteed annuity payments. That number jumped to 46% in 2026.

50% of retirees and more than 60% of pre-retirees admitted they were concerned about:

  1. Underestimating the amount of money needed to save for retirement.
  2. Overestimating how long their retirement savings would last.
  3. Underestimating how long they would live.

The hardest part of planning for retirement is turning savings into a paycheck that lasts. For many, choosing between a lump-sum or an annuity from their defined contribution plan can be an important factor.

Annuities vs. Lump-Sums

Retirees who elected guaranteed annuity payments report high levels of satisfaction and confidence.

What people who chose annuities are saying:
  • 94% agreed that receiving regular monthly annuity payments that are guaranteed for life from their former employer’s DC plan makes them feel financially secure.
  • 90% said they feel better off financially receiving regular monthly annuity payments rather than with a lump-sum.
What people with lump-sums are saying:
  • 51% said they are concerned that remaining money from their DC plan will run out, compared to 30% in 2017.
  • 61% who made a major purchase in their first year said they regret spending part of their DC plan, up from 33% in 2017.
What prompts people to choose a lump-sum vs an annuity?

Most lump-sum recipients whose employer offered an annuity felt it would give them access to a larger amount of money at one time and greater control over their finances. At the same time, 89% of retirees who received an annuity said it allowed for greater flexibility for potentially more aggressive strategies with their other investments.

For many, their parents’ experiences in retirement played a role. 6/10 retirees who took the annuity had at least one parent who received a retirement income from a pension plan compared with 35% of those who took the lump sum.

The Future of Retirement

7/10 pre-retirees think their employer should be required to provide an annuity option (partial or full) that they cannot outlive, compared to 53% in 2022.

Living longer makes a steady retirement paycheck more important now than ever. That’s why we support efforts that expand access to retirement savings options and help Americans plan for lifetime income in retirement.

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