Accumulation is so yesterday; now it’s all about distribution planning, or should be, according to Pentegra Retirement Services.
A new survey from the plan provider showed several surprising results, particularly when it comes to people’s lack of planning for drawing on their retirement savings. The results include:
• The average age when working Americans plan to retire is 66, with one in five not planning to retire at all.
• On average, working Americans who plan to retire think they will need $3,200 per month to live on when they retire.
• The average age when people want to start receiving their social security benefits is 67.
• More than half (56%) of those with retirement savings have no distribution plan for how they will access and stretch their money once they retire, with one in five not giving this any thought at all.
“The retirement industry has spent the last 20 years advising people how to accumulate retirement savings and reach a magic number,” Rich Rausser, senior vice president of client services at Pentegra Retirement Services, said in a statement. “Many may not ever be able to reach that goal, and we must shift some of the focus to helping educate people on what to do with their savings when they retire. How will you actually receive your money? At what age will you retire, how much do you think you need to live on each month and how can you make sure you don’t run out of money and outlive your savings—even without that magic number of savings? Our survey confirms that people need to learn about their options and solutions to maximize what they have saved.”
The survey revealed that when thinking about their financial future, those who plan to retire think they will need approximately $3,200 per month when they retire. Nearly one in five (19%) say they will need at least $5,000.
“Based on the average household income of $52,000, this number may seem practical at first glance, but many people do not factor in having to pay for health coverage and cost-of-living increases when estimating how much they will realistically need,” Rausser added.
An additional critical survey finding revealed a lack of understanding and awareness of options available to access retirement savings, including: lump-sum payouts (with only 24% very familiar with this option); routine quarterly or monthly payments (only 29% very familiar); annuities for themselves (guaranteed monthly payments payable over their lifetime) (just 23% very familiar); or an annuity for themselves for their life and the life of their beneficiaries (only 17% very familiar), with one in four employed U.S. adults (not already retired) not even aware that this option exists.
“More people need to know about these annuity options,” Rausser explained. “They take the stress and guesswork out of distribution, stretching your savings as far as possible. We call it ‘pension-izing’ – meaning they replicate some of the most important features of pension plans — features that made a traditional retirement simple when pensions were more commonplace.”
Annuity plans can be designed to stretch your savings over your lifetime and actually allow you to enhance your lifestyle by relieving you of the worry of having enough to live on. “Some people may never reach that ‘magic number’ for retirement and will need to readjust their expectations and views of what a traditional retirement looks like,” Rausser said.
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With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
