Making Your Retirement Savings Last

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A selection of coins American dollar contained in a glass jar

A new survey shows that less than 25 percent of retirees and pre‐retirees know how much of their retirement savings they can safely withdraw.

Retirement experts strongly suggest retirees should withdraw 4 percent 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 percent of retirees and 23 percent 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 percent of pre‐retirees thought it was safe to withdraw 5 percent to 9 percent. Thirteen percent of retirees and 15 percent of pre-retirees thought it was safe to withdraw 10 percent to 14 percent 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 percent to 24 percent (6 percent retirees, 9 percent pre-retirees), 25 percent to 49 percent (3 percent retirees, 4 percent pre-retirees), or 50 percent or more (2 percent retirees, 3 percent pre‐retirees). The number of respondents who said they didn’t know was also alarmingly large: 29 percent of retirees and 18 percent 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 percent of retirees and 12 percent of pre-retirees answered the question correctly, and a whopping 43 percent of retirees and 38 percent 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 percent) than retirees (28 percent) 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 percent in 2016 vs. 25 percent 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. 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 percent said no. Those who said no either intended to continue to save in retirement (31 percent) or planned to live on Social Security, pension income, annuity income, dividends, and interest (31 percent). Far more pre-retirees (40 percent) than retirees (20 percent) planned to use savings as a source of retirement income. This, again, is probably because fewer pre‐retirees are covered by traditional pensions.

Learn more about how to make your retirement savings last by contacting New York Life Partner Danielle Goslin at 956-412-4949 or dmgoslin@ft.newyorklife.com.