Q: Jean, what would you describe as the most important finding from this research on retirement spending?
The research reveals both a retirement spending paradox and a clear solution.
Just 28% of Americans are comfortable with the idea of retirement savings declining over time to cover their living expenses in retirement, and half associate retirement spending with “uncertainty.” The paradox is that despite that discomfort, Americans hope to have long and enjoyable retirements, which will likely require spending some of their savings: 61% associate retirement with “freedom” and “enjoyment,” and three in five plan to be retired for at least 20 years.
The good news is that the research also reveals the easiest way for retirees to overcome this discomfort and give themselves permission to spend with confidence: creating a decumulation plan – or said another way – a plan to turn their nest egg into a “paycheck” in retirement.
The study found that nearly three in five pre-retirees (55 or older) who have a decumulation plan are highly confident they can manage spending throughout retirement, compared to just 26% of those without a plan. What’s more, those who are confident they can manage their retirement spending are five times more likely to say spending in retirement is “empowering” and three times more likely to find it “rewarding” compared to those who lack that confidence.
Q: Despite the clear benefit of planning, the research also found that less than 30% of pre-retirees age 55 or older have a plan for how they’ll withdraw money in retirement. How should individuals approach making their retirement income plan?
For decades, the message around retirement planning has been “save, save, save.” And that’s extremely important. But planning can’t stop there. It also needs to take into account how you draw down those savings when you reach the spending phase of retirement.
Our research indicates that the widespread fears and anxiety around retirement spending may be tied to a lack of specific plans. In addition to the many pre-retirees who lack retirement spending plans, just 14% of retirees have a detailed strategy to manage their Required Minimum Distributions.
Even among those who do have a plan, gaps persist. The study found the most common approach is pursuing a consistent withdrawal percentage such as the popular “4% rule.” The challenge with this strategy is that general rules of thumb don’t account for your specific financial situation, your vision for retirement, or broader economic issues. As such, it doesn’t guarantee your retirement savings will last.
Creating a personalized retirement income plan can help turn retirement spending caution into confidence. The first step in this process should be to visualize your dream retirement and set clear goals. Ask yourself: Is leaving an inheritance important to you? Where do you want to live in your retirement? Do you want to travel?
Answering those types of questions will help you estimate your cost of living in retirement—and answering them in collaboration with a financial professional can take the guess work out of how to fund both your “needs” and “wants.” A financial professional can evaluate your financial situation, including identifying income gaps that may exist between your anticipated retirement expenses and available assets, and then provide guidance and strategies tailored to your unique situation.
That kind of guidance is something many people are looking for: roughly 60% of pre-retirees and retirees in our decumulation study said they would ideally turn to a financial professional for help managing their investments and spending in retirement.
Q: What does the research reveal about the importance of guaranteed lifetime income options, such as annuities, in a retirement spending plan?
By converting a portion of savings into a guaranteed lifetime income stream, such as that offered by an annuity, retirees can help ensure essential expenses are covered no matter how long they live, provide flexibility for discretionary spending like eating out or pursuing hobbies, and help protect against external risks such as economic conditions or stock market swings.
That dual sense of security and flexibility significantly impacts a retirees’ outlook on spending in retirement. Separate Corebridge research found nearly 3 in 4 people said having guaranteed lifetime income beyond Social Security, would positively impact their ability to spend on things that make them happy.
Perhaps not surprisingly, more respondents in our Decumulation study said they would prefer to receive $60,000 per year for life over a lump sum of $1 million when they turn 65.
Thank you, Jean.
To learn more about decumulation planning and how you can create a plan of your own, explore the Corebridge Decumulation Study.
For additional insights from Jean Chatzky about the importance of decumulation planning, check out her new book "The Forever Paycheck" or listen to this episode of the HerMoney podcast as Jean sits down with Corebridge President of Retirement Services, Terri Fiedler.
