Here’s some good news: The Center for Retirement Research (CRR) at Boston College reports that between 2013 and 2016, households led by someone between age 55 and 64 in the second-highest income quintile had an increase in retirement income. These wealthy households more than doubled their combined 401(k)/IRA assets – to a median total of $335,400.1
Further, those in the top income quintile saw a nearly 75 percent increase, to $780,000 in retirement savings. Overall, the median value of combined 401(k) and IRA assets rose 24 percent to $135,000 for everyone in this age group, for all levels of income.2
Here’s some bad news: $135,000 isn’t enough savings for most people approaching retirement.
According to the CRR, the average working couple looking to replace 75 percent of their pre-retirement income by age 65 will need to accumulate assets equaling 8.5 times their annual income at age 60. For perspective, the $135,000 median value is only 2.5 times the savings needed in this scenario when based on average annual household income.3
There typically are two income challenges for pre-retirees and retirees: amassing enough money to retire, and then not running out of it. Reasons for a lack of savings include low contribution levels, less-than-full participation in savings plans, high fees and “leakages” – taking out loans and premature withdrawals from retirement accounts, the CRR reports.4
Certainly, the less you have when you start retirement, the greater your risk of running out of retirement income. However, even those individuals who have saved diligently may want to consider a fixed income component to their financial strategy. By purchasing an annuity, even if they’re not ready to retire yet, pre-retirees can lock in a certain level of guaranteed income while still earning, saving and allowing other assets more time to grow. In fact, studies have shown that retirees experience more satisfaction in retirement if they are receiving guaranteed income from pensions or annuities, a feeling that is likely brought on by the certainty of continuous income.5 If you’d like to learn more about the role an annuity can play in your overall financial strategy, please give us a call.
Interestingly, many people aren’t aware of the role annuities can play in a retirement income plan. A recent survey found that more than 50 percent of consumers did not know that annuities can provide guaranteed lifetime income. The survey found that 42 percent incorrectly believed that an IRA provides this feature, and 26 percent thought mutual funds did.6
But perhaps the most disconcerting finding was that more than half of advisors surveyed believed that some of their clients who did not own annuities would run out of money during retirement.7
1 Bernice Napach. ThinkAdvisor. Oct. 10, 2017. “Retirement Assets of Many Households Fell Between 2013 and 2016: CRR.” http://www.thinkadvisor.com/2017/10/10/retirement-assets-of-many-households-fell-between. Accessed Oct. 24, 2017.
5 Walter Updegrave. CNN. Aug. 23, 2017. “Do you need an annuity?” http://money.cnn.com/2017/08/23/retirement/retirement-annuity/index.html. Accessed Oct. 24, 2017.
6 Michael S. Fischer. ThinkAdvisor. Sept. 22, 2017. “Clients Like Guaranteed Lifetime Income but Not Annuities: Report.” http://www.thinkadvisor.com/2017/09/22/clients-like-guaranteed-lifetime-income-but-not-an. Accessed Oct. 24, 2017.
Content prepared by Kara Stefan Communications.
Annuities are insurance products that may be subject to fees, surrender charges and holding periods which vary by company. Annuities are not a deposit of nor are they insured by any bank, the FDIC, NCUA, or by any federal government agency. Annuities are designed for retirement or other long-term needs. Annuity product guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company.
We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.
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