Americans Face Serious Risk for Outliving Their Retirement Savings

(ARA) – As Baby Boomers creep ever closer to their golden years, they face unprecedented challenges to their future financial security. Retirement nest eggs have eroded considerably since the equity bubble burst on the bull market of the 1990s. And interest rates are at historic lows, good news for borrowers but bad news for those seeking a comfortable income in retirement.
Worst of all, for most Americans there is a sharp contrast between their retirement dreams and the reality of their retirement savings. According to a recent GE Financial survey, 68 percent of Americans think they will need at least 75 percent of their current income once retired. However, fewer than 25 percent of Americans between the ages of 40 and 59 have saved more than $100,000 toward retirement, according to the 2003 Retirement Confidence Survey issued by the Employee Benefits Research Institute.
Of those who have planned ahead and built a substantial nest egg, most don’t know how to make it last. Of those surveyed, 41 percent of Americans are not even familiar with the term “retirement income planning.” Planning to ensure a monthly payout from retirement funds, similar to receiving monthly paychecks, is crucial in making funds last through retirement.
Unfortunately, the majority of Americans are confused by the difference between simply building a nest egg and building an “income plan.” When asked for primary sources of retirement income, 63 percent cited traditional asset accumulation vehicles such as 401(k company pensions, mutual funds, IRAs and stocks, rather than vehicles like annuities, which provide monthly distributions after retirement.
Fortunately, with a little help, getting on track to successful retirement income planning is not as confusing as many people think. Brian Breuel, certified financial planner, president and founder of Princeton, N.J.-based Wealth Strategies, LLC, Advisory Board Member of the GE Center for Financial Learning and author of the book Staying Wealthy, cites these five basic steps retirees and pre-retirees can follow to start developing their income plan:
* Step One — Figure Out Your Retirement “Paycheck.” Before determining how much you need to withdraw each month, you have to figure out your monthly expenses and the “salary” needed to cover these expenses. Don’t forget to build in your retirement dreams and how much it will cost to fund those special vacations or hobbies.
* Step Two — Assess Your Nest Egg and How Much You Can Withdraw. Many retirees overestimate the amount they can withdraw on an annual basis to preserve their nest egg, especially given today’s volatile markets. A good rule of thumb is to withdraw 3 percent of assets on an annual basis, certainly no more than 4 1/2 to 5 percent, but every situation is different. The amount you can safely withdraw will play a role in deciding how large your “paycheck” can be.
* Step Three — Allocate Your Investments. Depending on your retirement timeframe and goals, you should allocate your assets among cash reserves, bonds, annuities and stocks to pursue growth while building guaranteed income into your portfolio. Once again, this allocation will differ for each individual.
* Step Four — Protect Your Portfolio. Long-term medical and nursing home costs can quickly deplete your retirement portfolio. A key way to protect funds is to look into long-term care insurance, which can help cover these costs should you need long-term care.
* Step Five — Seek The Help of an Investment Professional! Planning to meet a lifetime of retirement income needs is complex and GE Financial recommends you seek help from a qualified financial planner in developing your retirement income plan.
For more information and suggestions on retirement income planning strategies, you can visit the GE Center for Financial Learning at www.financiallearning.com.
Courtesy of ARA Content