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Americans Lack Knowledge About How to Turn Retirement Savings Into Sustainable Income

Just 10% Can Name Safe Annual Retirement Savings Withdrawal Rate Risk Outliving Their Savings

With Social Security in Flux and Pension Coverage Contracting, Even the Affluent are Looking for Sources of Guaranteed Lifetime Income

Retirement Exec: “Time to Reformulate the Traditional Save-and-Spend Model”

Women More Focused on Need to Ensure Longer Self-Sufficient Retirements

NEW YORK, N.Y., May 15, 2006 — Only 10% of Americans understand how much of their retirement savings they can safely spend each year without running the risk of outliving their assets. According to a groundbreaking survey released today, nearly half of the Americans surveyed between the ages of 41 and 92 overestimated this safe withdrawal rate, which experts benchmark at 4% annually for the typical retiree. A surprising 40% of respondents admit they do not know how much to withdraw without spending down their savings. At greatest risk are the more than one-quarter (29%) of all respondents who believe they can spend 10% or more of their savings each year. At that rate, based on historic investment returns, retirees risk running out of money in about 11 years or less – while studies show most of them will live significantly longer than that.

"Lack of knowledge combined with uncertainties surrounding investment returns and life spans mean that even retirees who have substantial nest eggs are gambling with their financial futures in retirement. Recognizing that risk, Americans planning their retirements are seeking professional advice on how to replace and supplement the guaranteed income streams traditionally provided through Social Security and corporate pensions. As consumers become more educated about appropriate withdrawal rates that don't create significant risk of outliving their assets, they will become increasingly interested in converting portions of their assets into guaranteed lifetime income streams," said Ted Mathas, executive vice president of New York Life Insurance Company.

The survey, which examined the retirement planning attitudes and behaviors of 1,002 financial decision makers age 41 and over, with a particular focus on income in retirement, was commissioned by New York Life Insurance Company, the nation's largest mutual life insurer.

When It Comes to Retirement Income, Guarantees Matter
Sixty-nine percent of those surveyed are concerned about major cutbacks in Social Security and half of all respondents are concerned about having to fund their retirement past age 85.

Reflecting those concerns, 70% of retirees said managing their retirement savings is as hard as – or harder than – saving for retirement.

More than half of the pre-retirees surveyed (58%) thought it important at or near retirement to supplement the income they will receive from Social Security or pensions by purchasing a product like an annuity that provides guaranteed retirement income.

"Even overly optimistic consumers who overestimate prudent withdrawal rates are yearning for stable retirement income streams that are guaranteed throughout the course of their lifetimes," Mathas said.

The desire for guaranteed income is so strong that more than half (51%) of Americans not covered by 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.

Of the pre-retirees surveyed, 92% had reviewed the annual income benefit in their Social Security statement.

"The save-and-spend model of retirement planning needs reformulation. Americans have a deep desire for the type of guaranteed lifetime income streams historically associated with Social Security and corporate pension plans. We recognize the economic value as well as the peace of mind that come from receiving a check in the mail every month for as long as we live. But the new retirement reality will require future generations of retirees to create those streams themselves," Mathas said.

Pre-retirees' Top Priority: Learning More About Retirement Income
Asked which areas of retirement planning pre-retirees felt they should know more about, strategies for generating income in retirement was the top response, cited by 73% of pre-retirees, followed by planning for long-term care or major health expenses (70%).

"The emerging focus on income generation is a positive development,” Mathas said. “For the last 60 years, Social Security and corporate pensions provided a substantial income stream for most retiring Americans. There was no need to focus on securing guaranteed income streams because, between Uncle Sam and your employer, most of the work was done for you. For Baby Boomers, the next generation to retire, that’s unlikely to be the case."

According to U.S. Census data, individuals retiring at 65 today receive roughly 60% of their income from Social Security and employer-sponsored retirement plans. Experts believe the percentage will be about half that for future generations of retirees.

A Desire to Share Responsibility
In the era of self-directed, defined contribution plans, Americans still want help managing their retirement funds.

The majority (56%) of those surveyed either want to share responsibility for managing their workplace retirement funds or want their employer to do it entirely for them.

"While Americans are being told to take control of their retirement investments, the majority of us want the security and peace of mind that comes from financially-sound, guaranteed retirement income streams," Mathas said.

Retirement Income: A Women's Issue
While most respondents were concerned with 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 the 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; and
  • While the large majority of both men and women were unable to cite safe annual withdrawal rates, women were far more likely (51% vs. 29%) to admit they don’t have the answer.

"Women's interest in retirement income is understandable. Nearly one-third of all women who are 65 today will live into their nineties. Within the next 30 years, the number of women over age 65 is expected to almost triple. And 85% of adult women can expect to spend their last years of retirement alone. By age 85, there are twice as many women as men. As a result, longevity planning for retirement is – by and large – a women's issue. Fortunately, women seem more willing than men to admit they don’t know the answer and 'stop and ask for directions' – that is, seek professional advice," Mathas said.

Changing Retirement Expectations
Looking at their future retirements, only 11% of the pre-retirees surveyed believe they will improve their standard of living in retirement. By comparison, 27% of current retirees say their lifestyle is better now than before retiring.

Only 39% of pre-retirees surveyed expect to retire before age 65. That compares with the 71% of retirees surveyed who said they retired before age 65.

"Americans are grappling with the financial reality of a new retirement paradigm," Mathas said. "In terms of retirement planning, you have three courses of action. One is to lower expectations. Another is to delay retirement. The third and preferred alternative is to save aggressively and act smartly to recreate lost income streams. Many retirees will have to apply a combination of all three of these alternatives.

"Recent years have witnessed unprecedented retirement income product innovation," Mathas said. "With timely planning, a little belt-tightening and appropriate financial products, most of us can still enjoy a long and comfortable retirement."

The Advisor's Role
The survey found that professional advice can make a critical contribution to individuals' retirement prospects.

Of the pre-retirees surveyed, 58% work with a professional financial advisor. Compared with individuals working without an advisor, individuals working with an advisor are more likely to have a plan for generating income in retirement (70% vs. 50%), have greater retirement savings and are more likely to have made a realistic estimate of how long their money needs to last in retirement (51% of the advised consumers estimated 25 years or more vs. 39% of the unadvised).

"The survey data bear out something we see evidenced every day: when it comes to retirement, professional financial advice is critical," Mathas said. “Retirement planning is as complex and challenging emotionally as it is technically. For most of us, a professional financial advisor brings expertise and objectivity that most of us are hard-pressed to muster on our own behalf.

"But even as advisors help clients create more realistic expectations about retirement and the savings that will be required, advisors critically must also explain the amount of money that can safely be spent each year in retirement and secure their clients the guaranteed income streams they desire."

Survey Methodology
The survey was conducted by telephone between February 9 and March 9, 2006 by the research firm of Mathew Greenwald & Associates. Participants had to be at least 41 years of age (the age of the youngest Baby Boomers), were 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. The margin of error at the 95% confidence level for the 1,002 consumers surveyed is plus or minus 3.0 percentage points. The margin of error for the retiree/pre-retiree and gender samples is plus or minus 4.5 percentage points.

Help For Investors
In an effort to help educate consumers in the critical area of retirement and retirement income planning, New York Life has developed an informational Web site for investors: www.guaranteesmatter.com.

The site includes a wealth of information, including an interactive quiz on retirement income, retirement income calculators, and a downloadable consumer brochure.

NOTE TO EDITORS: New York Life's special Web site – www.guaranteesmatter.com – was developed as an educational tool for investors. There are no advertisements or solicitations of any kind nor does the site capture the names or addresses of site visitors. We encourage you to visit www.guaranteesmatter.com and to recommend it to your readers and/or viewers.

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Americans Lack Knowledge About How to Turn Retirement Savings Into Sustainable Income

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