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Americans today face a new retirement challenge – one very different from those faced by past generations of retirees.

With life expectancies rising and healthcare costs soaring, the price tag for a comfortable retirement has grown considerably. At the same time, pension coverage has declined dramatically and the future of Social Security has become more uncertain. That means Americans are not only responsible for accumulating substantial retirement nest eggs but, increasingly, for turning those savings into income that lasts a lifetime.

Despite the challenges, it's still possible for retirees to thrive in retirement. The key is to realistically assess your income needs, learn more about strategies for maximizing your retirement income, and develop a strategy to address how you will generate sustainable income in retirement.

New York Life Insurance company is committed to helping Americans meet the new retirement challenge. Earlier this year, we surveyed¹ 1,002 financial decision-makers in households with at least $100,000 in financial assets to gain insight into their knowledge, perceptions and behaviors regarding retirement income. The research findings – while pinpointing specific problem areas – suggest solutions that can help Americans realize a financially secure retirement.

The Retirement Income Challenge
Our research pointed to the need for investor education in two critical areas:

• Assessing income needs
  

  In order to accumulate sufficient assets for retirement, it's important to first assess how much income you will need in your nonworking years. One of the most important factors affecting this amount is the number of years that you will spend in retirement.

  Our research shows that a number of pre-retirees have not calculated or have underestimated the number of years their retirements could last. More than a third (35%) of the pre-retirees surveyed hadn't estimated how long their money will need to last in retirement, and nearly two in five (38%) pre-retirees who had made this calculation estimated their retirement would be less than 25 years. While it’s impossible to predict the future, today many Americans are spending 25 to 30 years, or even longer, in retirement.

  Many new retirees make the mistake of simply anticipating their retirement income needs through average life expectancy. Life expectancy is not the latest year that you can expect to live. Rather, it’s a median, meaning that you actually have a 50% chance of living beyond your life expectancy. Accordingly, a realistic retirement income strategy should extend beyond life expectancy.

• Turning retirement savings into sustainable income
  

  A great deal of attention has been focused on accumulating assets for retirement, but saving and investing is only the first half of the equation. Our research shows that for a considerable majority of retirees (70%), managing money in retirement is as hard as – or harder than – saving for it.

  In order to make their money last throughout retirement, it's critical for Americans to understand what percentage of their retirement savings they can safely withdraw each year. The timing and amount of withdrawals must be evaluated carefully to mitigate the risk of outliving your assets.

  Just one in 10 survey respondents could name a "safe" annual withdrawal rate – a rate at which you can withdraw money from your nest egg with reasonable certainty that you won’t deplete your retirement savings during your lifetime. Two in five said they didn’t know what percentage of their retirement savings they could safely withdraw each year without running out of money during their lifetime. At greatest risk of outliving their assets are the 29% of those surveyed who thought they could withdraw 10% or more of their savings annually.

  Experts generally agree on a safe inflation-adjusted withdrawal rate of 4% for the typical retiree. The less you receive from Social Security and pensions, the more conservative your withdrawal rate must be to ensure that your retirement savings can last 30 years or longer due to increased life expectancy.

  To successfully manage your funds throughout your nonworking years, it’s also critical to have a strategy that specifically identifies what your sources of income will be in retirement, how much income they will realistically produce, and how much risk is associated with drawing income from each of these sources. While nine in 10 (92%) pre-retirees have reviewed their Social Security statement to determine their annual income benefit, 37% of pre-retirees do not have a formal plan that addresses how they will generate income throughout retirement.

  Not surprisingly, the majority of pre-retirees feel they should know more about strategies for generating retirement income. In fact, when asked which areas of retirement planning they felt they should know more about, strategies for generating income in retirement was the top response, cited by 73% of pre-retirees surveyed.

  Managing money in retirement is as hard as saving for it
  Thinking about the difficulty of saving and investing for retirement vs. the difficulty of managing your savings once in retirement, retirees say:
  

  • Both are equally as hard – 59%
  • Managing money in retirement is more difficult – 11%
  • Saving for retirement is more difficult – 26%
  • Neither is hard – 4%

  Incorrect assumptions about safe withdrawal rates up the risk of outliving your assets
  When asked what percentage of their nest eggs they could safely withdraw each year in retirement, study participants responded:
  

  • Less than 5% – 10%
  • 5% to 9% – 19%
  • 10% to 14% – 17%
  • 15% to 24% – 6%
  • 25% to 49% – 2%
  • 50% or more – 3%
  • Don’t know – 40%

A Desire for Shared Responsibility
Despite all of the attention focused on self-directed, defined contribution plans, not all Americans like this new era of increased personal responsibility. Many want help managing their retirement funds. The majority (56%) of those surveyed either want to share responsibility for managing their workplace retirement funds with their employer or want their employer to do it entirely for them.

Many Americans don’t want sole responsibility for managing their retirement funds
When asked who they would like to be responsible for managing their retirement funds, survey respondents said they:

• Want to share this responsibility with their employer – 49%
• Want the employer to be completely responsible – 7%
• Want to manage retirement funds themselves – 40%

When It Comes to Retirement Income, Guarantees Matter

Reflecting many Americans’ desire for help managing their retirement funds, the majority of those surveyed have a strong desire for guaranteed income in retirement.

In fact, this desire is so powerful that half (51%) of Americans without a defined benefit plan wish they or their spouse had considered a career like teaching, law enforcement or civil service with a traditionally strong pension benefit.

More than two-thirds (69%) are concerned about major cutbacks in Social Security, and the majority (58%) of pre-retirees surveyed believe it’s important to supplement their current incomes at or near retirement with a source of guaranteed retirement income. Moreover, two in five (39%) pre-retirees said they would be interested in taking some of their retirement savings, such as money in a 401(k), and converting it into guaranteed monthly income for life.

In retirement, as in life, there are very few guarantees. Securing a guaranteed lifetime income stream can help reduce the anxiety of determining where your money will come from in retirement.

Americans see great value in guaranteed sources of retirement income
The majority of those surveyed:

• Are concerned about major cutbacks in Social Security – 69%
• Think it is important to supplement income from Social Security or pensions with a product like an annuity that provides guaranteed retirement income – 58%
• Wish they had considered a career that offers a traditionally strong pension benefit – 51% of those without household defined benefit coverage

Women are Particularly Concerned about Financial Security in Retirement
While most respondents were concerned about financial security in retirement, women were particularly focused on this issue and are more apt to recognize the need for additional retirement planning information:

• 57% of the women surveyed were concerned about funding their retirement past age 85 (vs. 43% of men);
• 76% of women were concerned about major cutbacks in Social Security (vs. 62% of men);
• 78% of pre-retired women (and 67% of pre-retired men) say the number one issue they should know more about in planning for retirement is generating retirement income;
• While the large majority of both men and women were unable to cite a safe annual withdrawal rate, women were far more likely (51% vs. 29%) to admit they don’t have the answer.

It’s critical for women to become more knowledgeable about building and managing income in retirement. Longer life expectancies mean that women will need to fund retirements that last years longer than those of men. In fact, nearly one-third of all women who are 65 today will live into their nineties². Within the next 30 years, the number of women over age 65 is expected to almost triple³. Moreover, 85% of adult women will be forced to bear this burden alone at some point during their retirement⁴.

Fortunately, women recognize that they could benefit from learning more about retirement income and seem more willing than men to admit what they don’t know and seek professional help. About two-thirds (65%) of the women surveyed work with a financial professional; just over half (51%) of the men surveyed seek professional financial advice.

Americans' Retirement Expectations are Changing
The survey results indicate that many Americans may be lowering their expectations for the "Golden Years". Only 3% of those surveyed believe future retirees will live comfortably in retirement. And, just 11% of pre-retirees anticipate that their lifestyle will be better in retirement than it is during their working years. By comparison, more than a quarter (27%) of current retirees surveyed say their standard of living has improved in retirement.

The research also indicates that a number of pre-retirees are planning to delay their retirement start dates. While 71% of the retirees surveyed had stopped working before age 65, only 39% of pre-retirees anticipate retiring by that age. About half (53%) of the pre-retirees surveyed expect to work to age 65 or beyond.

While it is important to be realistic about your expectations for retirement and to be flexible as circumstances arise and change, it’s still important to create a vision for your retirement and be proactive in working toward this goal. Don’t sit back and figure on just living with the situation as it unfolds.

Future retirees are planning to delay retirement
At what age do you expect to/did you retire:

• Under 55
  • Pre-retirees – 3%
  • Retirees – 10%
• 55 to 59
  • Pre-retirees – 11%
  • Retirees – 28%
• 60 to 64
  • Pre-retirees – 26%
  • Retirees – 34%
• 65
  • Pre-retirees – 23%
  • Retirees – 8%
• 66 to 69
  • Pre-retirees – 11%
  • Retirees – 8%
• 70 or older
  • Pre-retirees – 14%
  • Retirees – 5%
• Planning to never retire
  • Pre-retirees – 5%
  • Retirees – Not Applicable

Learn More about Strategies for Generating Income in Retirement to Meet the New Retirement Challenge
As the research demonstrates, gaining a better understanding of your retirement income needs and implementing a focused plan to meet this goal is critical to helping secure a comfortable retirement.

To educate and empower current and future retirees, we’ve used the insights gained from our research to create Guarantees Matter^SM, an educational program designed to help Americans meet the new retirement challenge.

The centerpiece of the program is an informational Web site for investors – www.guaranteesmatter.com – with a wealth of information including an interactive quiz on retirement income, retirement income calculators and information on lifetime income solutions.

We challenge you to take action and explore this Web site to learn more about strategies for generating and managing income in retirement.

The Financial Professional advantage
Professional financial guidance can play a critical role in helping you achieve a comfortable retirement. A professional’s experience and expertise can help you develop, implement and maintain an effective strategy to meet your income needs in retirement. Of the 1,002 investors we surveyed, 58% work with a financial professional. Investors working with an insurance and financial professional:

• Plan for longer retirements
  • 51% of survey respondents with adgents estimate that their money will need to last 25 years or longer; 39% of those without agents estimate that their money would need to last this long.

• Have a plan for generating income in retirement
  • 70% of investors with agents have a financial strategy that addresses generating income in retirement. Only 50% of investors without agents have such a plan in place.

• Are more familiar with income generating vehicles
  • 79% of survey respondents with an agent are aware of guaranteed lifetime income products; 73% of investors without agents are aware of these products.
  • 83% of the agents are familiar with annuities vs. 72% of those without an agent.

• Use investment products^* to fixed income
  • 83% of investors working with an agent own individual securities such as stocks and bonds; 69% of solo investors do.
  • 84% of survey respondents with an agent invest in mutual funds; 65% of do-it-yourself investors do.
  • And, 57% own annuities vs. the 36% of investors without agents who have purchased an annuity.

¹ The data featured here were gathered through a telephone poll survey conducted by premier research firm Mathew Greenwald & Associates, Inc. on behalf of New York Life. The telephone interviews were conducted between February 9 and March 9, 2006. Survey participants were all at least 41 years of age, solely or jointly responsible for financial and investment decisions in their households, and had at least $100,000 in investable assets. The sample was evenly split between retirees and pre-retirees and between men and women.
²"Making Your Money Last Forever," a report by The Actuarial Foundation and WISER, 2003
³U.S. Administration on Aging, Older Women Fact Sheet, 2000
⁴"Women and Retirement," Ric Edelman, http://www.ricedelman.com, 2005
^*Investment products sold by properly licensed registered representatives only.

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