An overwhelming 92% of American retirement savers are interested in using a portion of their 401(k)s at work to generate guaranteed lifetime income, with 25% saying they are “extremely interested.” That’s a key finding from American Century Investment’s 11th annual retirement survey released today, which asked savers about income in retirement and how they are handling the prospect of replacing their income after their last paychecks.
With roughly 11,200 Americans turning 65 each day, the survey of 1,500 American retirement plan participants ages 25-65 reveals attitudes and apprehensions on retirement income as the share of non-retirees with a defined benefit pension is 30 points lower than the share of active retirees with a pension.
Retirement income is the new conversation
“…a retirement plan without an income replacement goal is just a savings account.”
American Century’s Glenn Dial
While two in three are confident (very or somewhat) they know how much to withdraw to cover living expenses, the survey found some clear misunderstandings about retirement income. Only 1 in 10 correctly estimated the 70% to 80% income replacement rate that experts recommend to maintain their same standard of living. And despite their confidence in their ability to know how much to withdraw to cover living expenses, 87% believe they will need some level of help withdrawing money from their retirement accounts.
“Everybody wants retirement income, but creating an income plan when nearing retirement can feel like a mystery. Savers need more education and advice on truly setting up an income replacement plan for retirement, because a retirement plan without an income replacement goal is just a savings account,” said Glenn Dial, vice president, Retirement Thought Leadership and Research for American Century.
As evidenced by more than 9 in 10 expressing interest in using a portion of their retirement plans at work to generate guaranteed lifetime income, the idea of “protected” retirement income and options within retirement plans that generate it is a conversation-changer for savers, employers with workplace retirement plans and retirement advisors alike.
In addition, the survey found protecting the value of their entire savings account in the event of a stock market crash is very or extremely important to 3 in 4 respondents, even if they have to pay “a little more” to protect it. But most still want control over their account during the income phase, such as the option to change or opt out later, all while maintaining the ability to grow their income during retirement to keep pace with inflation.
Saving for retirement still top priority
Retirement continues to be people’s most important financial obligation, regardless of age, gender or income. 74% cite retirement savings as a major financial obligation, and all are at least a little worried about financing retirement. Other priorities include housing, monthly credit card bills and health care expenses. Credit card and student loan debt cause a lot of worry for about a third of people surveyed.
Most people feel they didn’t save enough for retirement in their 20s, but by the time they are saving for retirement in their 40s and 50s, they believe they are saving enough. People were most confident that they were saving enough for retirement in their 50s and 60s.
“If you’re within five to 10 years from retirement, start thinking about how much income you’ll need in retirement and take steps to plan now,” Dial said.
Most savers embrace some level of investment risk to get the returns they may need, with 7 in 10 at least somewhat accepting of market risk. Inflation and interest rate risks are still top concerns, with 6 in 10 highly concerned. Meanwhile, market risk is seen as less of a risk than last year. However, people closer to retirement worry more about investing for longevity so their retirement savings last and market volatility.
Employers want to help
Some 94% of employers feel responsible for helping employees save for and spend down their retirement, and 80% want employees to keep their assets in their plan. Nearly all agree it’s important to provide features that allow employees to turn their balance into a reliable income stream when it’s time to retire. “While employers are torn, over half would prefer to have guaranteed income as the default,” said Dial.
Surprisingly, 62% of American workers believe their target date funds provide income when they retire and 36% believe they are guaranteed to not lose money. Almost half of employees within 5 years of retirement find a loss of only 10% or less is acceptable and almost all are interested in guaranteed lifetime income.
“This points to a clear disconnect between what employees expect in their 401(k) plan versus what is selected for them by most employers,” said Dial.
SEE ALSO:
• Employees Prefer In-Plan Retirement Income Features
• Combining Annuity with Drawdown Strategy Balances Retirement Income with Liquidity: White Paper
• Most Advisors Talking Retirement Income with Participants: BlackRock
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
