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Who can blame Baby Boomers for delaying retirement? With the increase in the number of employers that have reduced or discontinued contributions to defined benefit plans, employees are having to carry the burden of saving for retirement more and more. Worse yet, this has occurred during a time of low interest rates and extreme market volatility. At one time, these employees that are looking to retire within the next ten years could earn 5% interest in a passbook savings account. Now they are lucky to get 1% on the one investment that used to be a sure thing: FDIC insured bank accounts. No wonder employees are saying no to retirement.

Employees can’t be sure if their income will last. Only 47% of employees are confident they can provide income for 25 years into retirement according to a study by Towers Watson. Older workers’ (age 50 to 64) confidence in having enough resources to live comfortably 15 years into retirement is slowly rising, but remains over 20% below 2007 levels. The key concern is providing a guaranteed income – employees just want to know how much they are going to receive and whether they can count on it continuing throughout their lifetime. They are even willing to pay a high premium for the guarantee. According to a recent Bank of America Merrill Lynch study. a whopping 82% of employees said they’d be willing to forgo 5% in salary to have a guaranteed income, and 42% would give up 10% or more for the same guarantee.

Delayed retirement hurts everyone – our economy, companies, and the employees themselves. The percentage of 60 – 64 year old employees retiring each year has dropped from 12% in 1998-99 to 7% for the same age group in 2009-10. Imagine if we were to be able to move back to that 12% level? Jobs would open up and benefit our economy. When workers retire or get promoted, it starts a ripple effect. Have any of you moved lately?

I didn’t retire last year, but I did move in 2011. In doing so, my husband and I helped economies in two different states, simply with relocation expenses. Real estate agents, moving and storage companies, hardware stores, and furniture stores all benefited from our relocation, and we are just one couple. Retiring workers also open up their jobs to younger workers, helping to retain employees who may have jumped ship for promotions, and also saving an estimated $10,000 – $50,000 in salary and benefits to the employer.

The answer may be to provide retirees with better income solutions, and the market place is responding. Traditionally, there were two ways to provide income for retirement – a lifetime income annuity, or a systematic withdrawal from a 401(k) plan. New hybrid retirement income options called “guaranteed lifetime withdrawal benefits” are increasing in popularity and are meant to be the best of both worlds. The more options provided to the employee that fit their needs, the better. Here are the pros and cons of each of these income options:

Guaranteed Lifetime Income Annuity – This option is essentially creating your own pension. The retiree uses their lump sum to provide an income stream guaranteed for their lifetime (and also their spouse’s lifetime if they choose that option). The main selling point here is the transfer of risk to the insurance company to provide income for the employee’s entire life. Another advantage is you aren’t paying asset management fees on the income, which could save – 3% a year compared to other income options.

The drawback—which is a big one—is once you cash the first payment, your decision is irrevocable, similar to a pension plan. There are a few plans that offer annuitants the ability to take unscheduled lump-sum payments when needed, but for most plans, once the payments start, you are committed for life. Unfortunately, the best time to invest in an income annuity is when interest rates are high – in other words, not now. Since the insurance company bases the annuity factor on long-term bond rates, now could be the worst time to lock in a guaranteed rate.

This option is best for retirees who don’t need liquidity and want to know exactly what their check will be. If you are interested in this income option, consider checking with your employer to see if it is offered as a 401(k) payout option. With your employer, you may be able to get a higher payout rate than finding one yourself in the retail annuity marketplace.

Systematic Investment Withdrawal – This is a widely used approach with about half of financial advisors today using a systematic withdrawal at a rate of between 4-5% for retirement income for their clients. A lot has been studied as to a “safe withdrawal rate” for retirement income without depleting assets before life expectancy. Of course, the “safe” range of income withdrawal depends on how the money is invested, but seems to be 2.5% of the total nest egg for more conservative portfolios, and up to 4% for more balanced portfolios. This plan may actually provide more income than either of the other two options, while still allowing the assets to be accessible (depending on the underlying investment).

On the flipside, the whole problem with this approach is that there are no guarantees, so it makes retirees nervous, which is one potential reason why they aren’t retiring. This option is great for the do-it-yourself investor or one that has a close working relationship with a financial planner who manages their assets.

Guaranteed Lifetime Withdrawal Benefits – the new hybrid option – This option is for retirees who want a guaranteed lifetime income to protect the downside risk of market loss while at the same time having the opportunity for their retirement income to increase as their funds grow. They also want access to their money. Guaranteed Lifetime Withdrawal Benefit (GLWB) plans do both. If the market value of the account drops, the minimum monthly income won’t drop, but if the market value increases, there is a possibility for the income to increase. This type of income account sounds like the best of both worlds for retirees, especially in today’s low interest rate environment.

The main drawback to these plans is cost. Investors have to pay the normal asset management fees within the investment as well as additional fees for this “withdrawal insurance” that range on average between 1% and 2%. Add these to your management fees and you may be paying 1.5% to 3% per year. On a $1,000,000 account, retirees would be paying $15,000 on the low end and $30,000 on the high end every year to the tune of $375,000 – $750,000 over their 25 year retirement. Considering pre-retirees are saying they’d pay 5% per year for a guarantee, it may be worth it for them.