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Retirement Plan Lump Sums Being Depleted Too Quickly, According to MetLife

MET | April 11, 2017

Retirement Plan Lump Sums Being Depleted Too Quickly, According to MetLife

~ MetLife’s Paycheck or Pot of Gold Study ^SM Reveals 21% of Retirement Plan Participants, Who Took a Lump Sum, Depleted It in 5.5 years, on Average ~

Lump sum payment or guaranteed monthly annuity? That’s the decision facing many soon-to-be retirees with either defined benefit (DB) or defined contribution retirement plans (DC). While a lump sum may be attractive to some, there could be significant drawbacks as found by MetLife’s new Paycheck or Pot of Gold Study^SM. According to the study, released today, one in five retirement plan participants who selected a lump sum from either a DB or DC plan (21%) say they depleted it. Of those who depleted their lump sum, they had run through their money, on average, in five and a half years. One in three with money remaining (35%) are concerned about the money running out.

The online study was conducted by Harris Poll among more than 700 DB and DC plan participants. The study was designed to understand consumers’ attitudes and decision-making with regard to lump sums and income annuity payments from several sources, including a DB or DC plan. The full report examining these findings is available at: www.metlife.com/paycheckstudy.

“MetLife’s Paycheck or Pot of Gold Study highlights a real risk in retirement—running out of money,” says Robin Lenna, executive vice president and head of Retirement & Income Solutions at MetLife. “Today, people may live 20 or 30 years in retirement, and while lump sums may meet retirement plan participants’ immediate needs, they may fall short in providing funds that can last a lifetime.”

A Choice with Lifelong Implications

Nearly all retirement plan participants who chose an annuity from a DB or DC plan (96%) were happy with their choice. Similarly, the majority of participants who took a lump sum say they are glad they made the choice they did (93% for DB lump sum recipients and 85%¹ for DC lump sum recipients). However, the lump sum recipients appear to have had more financial concerns.

More than half of DB and DC plan participants who chose a lump sum (52%) concede that, if they would have taken the annuity, their budget would be more predictable. In contrast, most participants who selected an annuity feel they are financially secure (91%), and that the annuity payments make budgeting more predictable (95%).

In addition, four in ten participants who chose a lump sum from their DC plan over an annuity (41%)² say that they would not be concerned with outliving their assets if they had chosen to annuitize, and 38% of those who chose a lump sum from their DB plan say they would not be afraid of running out of money in retirement if they had chosen to receive annuity payments. Sixty percent of annuity recipients believe they worry less about outliving their money than their friends and neighbors without steady income from an annuity, while only 6% believe they worry more.

Spending Habits

When it came to spending their lump sums, the study found 63% of individuals reported that they had major purchases/spending within the first year. But these decisions were not without remorse—nearly one-third of those who made major purchases/spending in the first year (31%) say they have regrets about the spending and almost a quarter (23%) of those who gave money away regret doing so. When asked about specific regrets, a 54-year-old DC participant commented that, “Once spent, [the money] will never be available for my future,” and a 66-year-old DC participant said, “I didn’t need the money then, but I need it now.”

“When an individual receives a lump sum, it is often more money than they have ever had at one time,” notes Lenna. “As a result, it is easy to underestimate how quickly it can be depleted. Guaranteed income from annuities can help participants plan their spending, ensuring there is enough money available when they need it.”

About the Study

The research was commissioned by MetLife and conducted by Harris Poll. The study surveyed 1,069 adults, ages 18+, online in the U.S. between June 16, 2016 and July 11, 2016, including 712 adults ages 50-75, who received a lump sum of at least $25,000 if they had a defined benefit (DB) plan or had a balance of at least $25,000 upon retirement in their defined contribution plan (DC), or monthly annuity payments of at least $500 from a defined benefit or defined contribution plan. Data are weighted where necessary by age, gender, race/ethnicity, region, education, income, and propensity to be online to bring them in line with their actual proportions in the population.

About Harris Poll

Over the last five decades, Harris Polls have become media staples. With comprehensive experience and precise technique in public opinion polling, along with a proven track record of uncovering consumers’ motivations and behaviors, Harris Poll has gained strong brand recognition around the world. Harris Poll offers a diverse portfolio of proprietary client solutions to transform relevant insights into actionable foresight for a wide range of industries including health care, technology, public affairs, energy, telecommunications, financial services, insurance, media, retail, restaurant and consumer packaged goods. Contact us for more information: ConsumerInsightsNAInfo@nielsen.com

About MetLife

MetLife, Inc. (NYSE:MET), through its subsidiaries and affiliates (“MetLife”), is one of the largest life insurance companies in the world. Founded in 1868, MetLife is a global provider of life insurance, annuities, employee benefits and asset management. Serving approximately 100 million customers, MetLife has operations in nearly 50 countries and holds leading market positions in the United States, Japan, Latin America, Asia, Europe and the Middle East. For more information, visit www.metlife.com.

¹ Small base (n<100)

² Ibid