Americans Closest to Retirement are Ill-Prepared to Generate a Retirement

Study finds guaranteed retirement income desirable, but elusive, for many near retirees

(ARA) – A new study released by Prudential Financial, Inc. finds that Americans aged 55-64 overwhelmingly agree that having a guaranteed stream of income during retirement is their top goal, but the vast majority don’t know how to convert their retirement savings into a regular retirement "paycheck," focusing instead on simply saving as much as they can. According to the company’s fourth annual Workplace Report on Retirement Planning, despite a nearly unanimous desire for a guaranteed retirement income - as traditional pension plans provide - few older American workers are aware of or plan to use financial options that provide the steady paycheck they say they want. The study confirms that older workers are actively saving for retirement, but few are aware of the income distribution options currently available. In short, near retirees simply do not know what to do with their retirement nest eggs once they stop working.

According to the survey, some 83 percent of near-retirees believe it is “very important” to generate an income that provides a comfortable retirement lifestyle. But barely 20 percent say they are well informed on how to do so. When asked if they would choose an income annuity to create a retirement paycheck - the only option available to guarantee a stream of income that one cannot outlive - fewer than half (44 percent) had even heard of the income annuity option, and just 9 percent said they would use it.

Moreover, only 15 percent of those surveyed are focused on “generating retirement income,” while the remaining 85 percent are continuing to concentrate on "building their retirement nest egg" (approximately 41 percent); "preserving and protecting their savings" (approximately 23 percent); or "achieving better returns" (approximately 20 percent).

“Current industry data shows that American workers aren't saving enough in their workplace-provided retirement programs, and our survey indicates that this lack of preparedness extends from the accumulation phase of retirement planning into the distribution phase,” said John Kim, president, Prudential Retirement. “Even those who are conscientious savers and investors, including Baby Boomers now aged 55 to 58, aren't prepared to convert their retirement savings into a predictable retirement paycheck that they can’t outlive.”

“This should be a 'wake-up call' to employers, to retirement-plan providers and to the nation as a whole that those nearing retirement need help in managing the payout phase of retirement, especially in light of current discussions on Social Security," Kim continued.

"The survey also underscores the need for better education - targeted specifically to the needs of older workers - on distribution options and strategies that deliver a predictable, guaranteed income in the increasingly do-it-yourself world of retirement planning. We need to work together to ensure that American workers have access to the tools and resources they need to build a more-secure retirement,” Kim added.

In addition, the survey points to an unmet need among many Americans for assistance with retirement planning. Although near retirees acknowledged they must take personal responsibility for their retirement security, a mere seven percent have formal plans in place to help them manage such issues as generating income, identifying expenses, and utilizing savings.

More than one-third (34 percent) of those surveyed said they need assistance to understand products and concepts - such as income annuities and systematic withdrawal strategies - that can help generate the predictable retirement income they seek. And a large percentage (35 percent) have yet to calculate the savings they need for a comfortable retirement or what their projected monthly living expenses might be in retirement (36 percent).

Even more disturbing, when asked to give themselves a grade on their retirement preparedness, 53 percent awarded themselves a "C" or lower, casting grave doubt on the ability of older workers to "graduate" to a secure retirement. Other notable survey findings included:

• The majority (90 percent) of near retirees are either guessing how much income they would have or, even worse, simply do not have any idea of how much income they will be able to generate for themselves during retirement.
• Although retirement for many Americans is imminent, more than six in ten near-retirees still focus on accumulating assets or achieving better returns instead of planning on how to generate a steady stream of retirement income.
• Too often, near-retirees simply “do the best I can” with retirement planning, instead of focusing on specific, retirement-critical goals such as a targeted level of income.
• Nine in 10 near-retirees agree it is “very important” not to run out of money in retirement. This concern, however, may lead to “hoarding.” Just 22 percent say they would tap into their savings for income early on in retirement, while most would try to hold on to their assets for as long as they could.

Courtesy of ARA Content