Researchers at Brigham Young University recently concluded that individuals who use lifetime income annuities could fund a secure retirement with lump sums that are 25 to 40 percent smaller than they would need with other types of investments.

The basis for this conclusion was a 2007 study of lifetime income annuities that was funded by New York Life Insurance Company. As a part of their research, the researchers outlined five forces converging upon Americans, which they refer to as the perfect storm, that are about to engulf retirees from all sides:

· The decreasing levels and importance of Social Security benefits - People currently in the workforce will receive a much lower return on their Social Security contributions than their parents.

· The demise of defined benefit pensions - Over the past 15 years, there has been only one new pension program of any significant size initiated in the United States. The number of pension plans in the U.S. peaked at 175,000 in 1983, and has since declined to less than 25,000. Some of the largest pension programs have been discontinued, closed to new hires, or frozen to all employees. Another 30 percent face similar fates within the next two years.

· The aging of the baby boom generation - Beginning this year, the first members of this generation will turn 60, with many leaving their jobs and entering retirement. They will continue to exit the workforce over the next twenty years. Currently constituting over 27 percent of the U.S. population and 47 percent of all households, they will become heavily dependent upon Social Security, retirement plans, and any accumulated assets.

· The emergence of post boomers - Generations X and Y will not only be responsible for providing for their own future retirement and health needs, but also with supporting the Social Security and Medicare costs of the boomers. Overall there will be many more people drawing from the Social Security system, with far fewer people contributing.

· The increasing longevity of the American population - Life expectancy for the population at large has increased over the past century.

Based on the impact of these forces on future retirees, researchers found that if people expect their current income and assets to cover their economic needs for the rest of their life, half of them will remain without sufficient funds because they will live longer than their life expectancy.

However, if they plan for an extended life expectancy by purchasing a lifetime income annuity, they will be able to spend at the same rate as long as they live. An income annuity is the only financial product that offers this guarantee.

Trying to replicate the advantage of a secure lifetime income with other investment options will require additional savings. Additionally, you can never ensure a secure lifetime income with other investments, because interest rates could change over the next 30-50 years, giving you less return on your investments than you expected. Utilizing income annuities for basic living expenses can offer retirees more financial flexibility and the ability to take on more investment risk with their other assets.

* Annuity withdrawals are generally taxed as ordinary income and may be subject to surrender charges, in addition to a 10% federal income tax penalty if made prior to age 59 1/2. The guarantees and payments of income are contingent on the claims paying ability of the issuing insurance carrier.

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