I recently wrote about retirees moving to Tibet, a metaphor for retirees moving from the “land of accumulation” to the “land of accumulation” and the new financial culture with which they will have to master. The “tour guides”, the financial industry, will have to solve the “annuity puzzle”, the investment industry term for the disconnect between the economic arguments of annuitizing and the investor’s aversion to annuitizing. It’s a difficult puzzle to solve according to a July 2007 Fidelity Research Institute study which indicated  that retirees and pre-retirees are signicantly underestimating how long they need to make their retirement savings last.

Retirees believe they will need to make their retirement savings last until an average of age 85; for pre-retirees, the average estimate is even younger at age 83. These estimates highlight how many pre-retirees underestimate their life spans, and therefore risk outliving their assets, given the likelihood of living to at least 90 for men (24%) and women (35%) who have reached age 65.

While there are a myriad of barriers to adoption of annuities – some based on emotion and some on logic – the study found that each is potentially solvable by improved investor education. Here is the link to the the Fidelity study, Structuring Income for Retirement: Addressing America’s Guaranteed Income “Gap” (24 pages, PDF).