Retirement income strategy leaves little to the imagination. You either have one – or you don’t. One’s retirement income strategy can provide peace-of-mind – as much as a somewhat predictable return guideline.
Investing can seem less complicated when compared to the Second Act. The Second Act – of putting in place a retirement income strategy that pays you a combination of income and principal – for the rest your life is difficult. After saving for 30-40 years (or not), Americans are tasked with creating a retirement income strategy, and the majority must accomplish this on their own.
A sad sad reality is, most savers aren’t even aware of the need for creating a retirement income strategy – until they must accept the task. In most cases this is simply due to a lack of knowledge and education. Without advice and support from a financial professional, many don’t know how to create a steady stream of income in retirement. According to retirees surveyed by global investment manager Schroders, half do not have any strategy to generate retirement income. They simply withdraw money when they need it.
Among those retirees who do create an income, strategies include:
It turns out, there is a knowledge gap when it comes to using Social Security benefits to establish one’s retirement income. Among the non-retired Americans age 45 and older that Schroders surveyed, seven in 10 said they wished they were more knowledgeable about Social Security. However, only 10% said they would wait until age 70 – the age where they can collect their maximum monthly benefit – to begin taking their Social Security benefits. This decision to forego larger payments appears to be deliberate, given that 74% of non-retired respondents recognize the longer they wait to take their Social Security benefits, the more they will receive – however, only 13% of those near retirement age (60-67) said they planned to wait until age 70.
Many Americans rely on Social Security when creating retirement income – in fact, it is often a primary income source. Schroders found that Social Security will be a primary income source for 52% of non-retirees and 58% of retirees. However, Social Security alone won’t be enough to live on, according to 64% of non-retirees and 62% of retirees. The respondents to the Schroders survey have other sources from which to create retirement income, including:
It would appear that American workers and retirees require additional education – an education on topics that will help them understand the retirement income strategy best suited to their unique situation. Employers can offer support through retirement plan education and communication strategies, as well as financial wellness programs. This can be achieved by partnering with a knowledgeable financial professional, who can personalize strategies and guide plan participants by helping to create a retirement income.
Steff C. Chalk is Executive Director of The Retirement Advisor University, a collaboration with UCLA Anderson School of Management Executive Education. Steff also serves as Executive Director of The Plan Sponsor University and is current faculty of The Retirement Adviser University.