As fewer employers offer traditional pensions and retirees live longer in retirement, American workers today face significant challenges preparing for retirement. Responsibility for building and managing savings has shifted from the employer to the employee. Beyond Social Security and traditional pensions, the only way to create a guaranteed, lifelong income stream in retirement is through an annuity.
An annuity is an insurance contract that offers an efficient solution to what otherwise could be an overwhelming asset management task: creating a steady paycheck in retirement that will never run out. Annuities help people save for retirement during their working years, and turn savings into an income stream guaranteed to last a lifetime.
This lifetime income option through annuitization allows retirees (and their spouses) to maximize retirement income without having to worry about payments stopping while they are alive.
During 2007, Americans deposited $193 billion into their annuities, up 3 percent over the previous year. Life insurers paid $43 billion in benefit payments to annuity owners in 2007, providing steady and secure retirement income.
Annuities also play an important role in retirement plans offered at the workplace. Employers who sponsor defined benefit plans often partner with life insurers to provide retirees with a paycheck for life through an annuity. Similarly, employers who sponsor defined contribution plans like 401(k)s may partner with life insurers to provide workers with an annuity so that a portion of their workers’ account balance at retirement will provide an income stream for life.