Today’s report by the Government Accountability Office on the use of annuities to keep people solvent in retirement is no ringing endorsement of the practice. But the report is likely to provide more traction for insurers who are lobbying in Washington for greater acceptance of annuities as part of an official strategy for staying fiscally fit in later life.
Financial advisors won’t find much news in the 79-page study, “Retirement Income—Ensuring Income throughout Retirement Requires Difficult Choices.” (Duh!) Indeed, financial advisors were among the experts the GAO consulted for the research. GAO offers no conclusions or recommendations on what investors ought to do about their golden years; instead, the study just observes what the GAO heard from the industry. There’s a lot of, “Experts we interviewed tended to recommend…” and “The experts we spoke to also recommended…” sprinkled throughout.
And what are the experts recommending? Retirees should “systematically draw down their savings and convert a portion of their savings into an income annuity to cover necessary expenses, or opt for the annuity provided by an employer-sponsored DB pension instead of a lump sum withdrawal.” The report goes on to note that some pension sponsors are reluctant to offer annuities, fearing that their choice of provider could make them legally liable when problems pop up.
Gee, just what the insurers are thinking. There isn’t a lot of reporting on how expensive and complex annuity products can be, however.
Maybe that’s what the DC stands for in DC pension plans: “Difficult Choices.”