Why Annuities Are Such a Tough Sell

The potential need for these products is enormous. On January 1, 2008, the first baby boomer will turn 62, the average age of retirement, followed by 76 million more over the next 15 years.

Consider this: If you are 65 years old, you are just as likely to live another 30 years as you are to die before your 70th birthday, according to data from the Society of Actuaries cited in the Fidelity study.

At the same time, research shows that the Social Security system is on track to replace less than 30% of pre-retirement income for retirees by the 2030s. That's a slow but significant decline from today's 39% replacement rate.

Finally, U.S. Department of Labor statistics, cited in the Fidelity report, indicate that only 37% of workers in 2005 (the most recent data available) were covered by pensions, down dramatically from 84% in 1979.

"Many of today's retirees have the luxury of knowing that even if they overspend in their early retirement years, they still have a broader safety net of guaranteed income sources to help them get through," Van Harlow, managing director for Fidelity Research Institute, said in a press release accompanying the study.

"However, pre-retirees will have a much smaller net to catch them if they make a planning mistake, and even if they accumulate additional savings to compensate, they will still need to determine how best to structure their portfolio to reduce their personal guaranteed income gap," Harlow said.