Retirees are depleting pension plan lump sums faster than five years ago

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NEW YORK–(BUSINESS WIRE)–As retirement approaches, employees are faced with a decision that can have lifelong implications: to take a lump sum payment or a guaranteed monthly annuity from their employer-sponsored defined contribution (DC) plan. . According to MetLife℠’s 2022 Paycheck or Pot of Gold study, an increasing proportion of retirees are exhausting their lump sums at a faster rate than before. The full report is available at metlife.com/paycheckgoldstudy.

Today, one in three retirees (34%) who withdrew a lump sum from their DC plan exhausted the lump sum within 5 years, on average. In 2017, the inaugural Paycheck or Pot of Gold Study found that one in five retirees (20%) who took a lump sum from a retirement plan exhausted their lump sum, on average, in 5 years and half.

“There can be significant downsides for retirees when taking a lump sum,” said Melissa Moore, senior vice president and head of annuities at MetLife. “With the average American living 20 years or more in retirement, longer than previous generations, this may put them at risk of outliving their money too quickly and having to fund a significant portion of their retirement years without other income. than social security.

A cloud of concern also hangs over people who still have leftover assets. The study found 41% express anxiety about running out of money. This is particularly true for women, with more than half (57%) concerned about their lump sums running out, compared to a third (34%) of men. More women have also already exhausted their retirement lump sums, with 43% of women having done so, compared to 29% of men.

Spending habits

For those who chose a lump sum in retirement, more than three-quarters (79%) made at least one major purchase, including luxury items such as vehicles, vacations, and new or second homes, during the of the first year following the withdrawal of the money. This is a significant increase from 2017, when 64% made such a purchase. Of all lump-sum payout recipients, just under half (46%) express at least some regret about taking money out of their DC plan.

In comparison, almost all pension-only retirees (97%) use money from their DC plan for some type of day-to-day expense, such as day-to-day living expenses or housing costs, and 94% agree that the Receiving annuity payments makes it easier for them to pay for basic necessities. With this, 95% say receiving monthly annuity payments gives them a sense of financial security. In fact, virtually all annuity-only recipients are satisfied (96%) that they chose to receive a retirement salary from their DC plan.

Pre-retirees prefer a guaranteed retirement “paycheck”

“Most retirees did not have the option of taking a partial lump sum/partial annuity,” added Roberta Rafaloff, vice president, Institutional Income Annuities, MetLife. “Looking forward, as employers feel more comfortable offering annuities to retiring workers following the annuity selection guidelines included in the SECURE Act, pre-retirees may have more options. to make their money last.”

This is good news since nine out of 10 pre-retirees (90%) believe it is valuable (i.e. very important or absolutely essential) for someone to have a guaranteed monthly income in retirement ( a “paycheck” in retirement to pay bills Nine out of 10 (89%) pre-retirees are also interested in an option that would allow them both to have a “paycheck » monthly pension that would last as long as they (or their spouse/partner) live and access to a lump sum of their retirement savings to spend as they see fit. However, if they had to choose one or the other, pre-retirees are much more likely to opt for the annuity (82%) rather than a lump sum which would give them all of their retirement savings at once. time, but could potentially run out (18%).

About the study

This survey was conducted online in the United States by The Harris Poll on behalf of MetLife between November 16 and December 15, 2021 among 1,911 American adults aged 50 to 75 who were retired or within five years after their retirement. The study included 907 “retirees” who were defined as retired adults and had a balance of $25,000 or more in a defined contribution (DC) plan (e.g., 401(k), 403(b) ), 457, Thrift Savings Plan) when they retired and withdrew all or part of that balance Where receive monthly annuity payments of $500 or more from a DC plan. This summary includes notable comparisons to the 2017 Paycheck or Pot of Gold study with respect to the retiree segment.

The study also included 1,004 pre-retirees, who were defined as adults who plan to retire in five years but who are currently employed full-time, currently enrolled in an employer’s defined contribution plan, and know what type of defined contribution plan they have through their employer.

Data on retirees and pre-retirees were weighted separately by education, age, gender, race/ethnicity, region, household income, household size, and marital status, if any, to bring them into line with their actual proportions in the population. Propensity score weighting was used to adjust respondents’ propensity to be online.

About the Harris Poll

The Harris Poll is one of the oldest surveys in the United States, monitoring public opinion and social sentiment since 1963. Harris is a global consulting and market research firm that provides social intelligence for the times of transformation, working with clients to build corporate reputation, brand strategy and performance monitoring, and organic media gain through PR research. Its mission is to provide information and advice to help leaders make the best decisions possible. Learn more by visiting harrispoll.com and follow Twitter and LinkedIn.

About MetLife

MetLife, Inc. (NYSE: MET), through its subsidiaries and affiliates (“MetLife”), is one of the world’s leading financial services companies, providing insurance, annuities, employee benefits and asset management to help individual and institutional clients build a confident future. Founded in 1868, MetLife is present in more than 40 markets worldwide and holds leading positions in the United States, Japan, Latin America, Asia, Europe and the Middle East. For more information, visit www.metlife.com.

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