Among current retirees, annuities account for only an average of 4% of household income. That’s the finding of a new study of annuity use among retirees and near retirees just released by LIMRA, the Connecticut-based financial industry research organization.

The LIMRA study found that 35% of retirees receive some amount of income from an annuity in retirement, but the majority of these people are so far relying primarily on pensions and social security checks to meet daily and monthly expenses, according to Jafor Iqbal, associate managing director of LIMRA Retirement Research. 

Iqbal, noting that many large employers have been doing away with their traditional defined benefit pensions and replacing them with 401(k) plans, says, “In the coming years, we expect to see fewer Americans retiring with pensions, and more relying on their personal savings to fund their retirement.” (Only one in five companies still has a traditional defined-benefit retirement plan for employees.) Under these circumstances, he predicts that annuities will become increasingly popular as a way of converting savings into a guaranteed income stream.

Iqbal’s study, involved interviewing people with annual incomes of at least $35,000 who were aged 55 to 79, who had been retired for at least a year, and who had not worked for pay for the prior 12 months. The respondents were also all people who were “personally involved in making decisions” about household savings and investments.”

He found that the use of annuities in retirement was not much related to income, but varied widely according to a household’s assets.

For example, about one-third of retired households reporting annual incomes of under $75,000 said they relied on income from an annuity, a rate only about 5% lower than for households with annual incomes of over $75,000 a year.  

Assets were another story. For those retiree households reporting assets of under $100,000, only 22% said they received income from an annuity. For households with assets of $250,000 to $49,000, the percent receiving annuity income rose to 45%.  Above $500,000 in assets, the percentage of household income coming from annuites dropped back slightly to 40%.

In terms of products, only one-fifth of retirees who had annuity income said they owned immediate annuities. Most had deferred annuities from which they were taking withdrawals.

The main attraction of annuities, Iqbal reports, is the income guarantee. “All of our research has revealed that consumers are attracted to guarantees with their financial products -- especially when the economy is performing poorly,” he said. “This holds true for retirees as well.”  He notes that the study found that 40% of retirees who had annuities in their portfolios reported having their income stream guaranteed for life.