Do you know how to make your retirement savings last?
A new survey shows that less than 25% of retirees and pre‐retirees know how much of their retirement savings they can safely withdraw.
Retirement experts strongly suggest retirees should withdraw 4% or less of their savings on an annual basis to ensure they don't run out of money. Unfortunately, though, according to a recent Ipsos survey, less than a quarter of respondents—only 21% of retirees and 23% of pre‐retirees—are aware of that recommendation.
Ipsos Public Affairs recently conducted the survey on behalf of New York Life to find out how prepared Americans were to handle their savings in retirement. Interviews were conducted online with 810 retirees and pre‐retirees, age 40 and over with household income of at least $100,000—and the results were disquieting.
In addition to the findings above, 22% percent of retirees and 28% of pre‐retirees thought it was safe to withdraw 5%–9%. Thirteen percent of retirees and 15% of pre‐retirees thought it was safe to withdraw 10%–14% a year. Unless you're over 80, you are almost certain to outlive your savings at that rate.
Some people even thought it was safe to withdraw 15%–24% (6% retirees, 9% pre‐retirees), 25%–49% (3% retirees, 4% pre‐retirees), or 50% or more (2% retirees, 3% pre‐retirees). The number of respondents who said they didn't know was also alarmingly large: 29% of retirees and 18% of pre‐retirees.
Despite this unsettling news, there were some bright spots. The survey found that respondents in 2016 were better informed than respondents 10 years ago, when the same question was asked. Then, only 8% of retirees and 12% of pre‐retirees answered the question correctly, and a whopping 43% of retirees and 38% of pre‐retirees responded that they didn't know. That's movement in the right direction.
Respondents were also asked how interested they would be in investing a portion of their retirement savings in an annuity (a financial product that provides guaranteed retirement income for life, much like a traditional pension). Forty‐five percent of respondents were at least somewhat interested.
More pre‐retirees (63%) than retirees (28%) were at least somewhat interested in annuities. That may be because more retirees than pre‐retirees are covered by traditional pensions.
Overall, interest in annuities seems to be increasing: Far more respondents expressed at least some interest in annuities in 2016 than respondents did 10 years ago: 45% in 2016 vs. 25% in 2006. That also may be because fewer people are covered by traditional pensions today than were 10 years ago.
Paradoxically, those who are in the most need of annuities—risk takers and people with limited retirement savings—are often the most reluctant to purchase them.
According to Ron Lombardi, Director of Retail Annuities for New York Life, “While the study shows improvement, it is still critically important that more Americans become aware of the ways to generate income safely. Annuities can be a good way for many to achieve that goal.”
Many people assume that they can make up for setbacks by working longer or returning to work after retirement. But people are often forced into retirement earlier than they had planned. Today, age 62 or 63 is when most people retire, Jamie Hopkins, an associate professor of taxation at The American College, told Forbes magazine.1 An annuity can protect you if you find yourself unable to work or unable to find a job.
Finally, respondents were asked if they planned to routinely use their savings as retirement income. Thirty percent said yes; 62% said no. Those who said no either intended to continue to save in retirement (31%) or planned to live on Social Security, pension income, annuity income, dividends, and interest (31%). Far more pre‐retirees (40%) than retirees (20%) planned to use savings as a source of retirement income. This, again, is probably because fewer pre‐retirees are covered by traditional pensions.
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