– In Guaranteed Income: A License to
Spend, Retirement Income Institute
Fellows David Blanchett
and Michael Finke examine how
Americans achieve their lifestyle goals in retirement
through annuitized income –
WASHINGTON, June 25,
2024 /PRNewswire/ -- Retirees with assets
that annuitize income spend twice as much as retirees with an
equal amount of non-annuitized savings, according to a new analysis
by the Alliance for Lifetime Income's Retirement Income Institute
(RII).
In their newly released study, Guaranteed Income: A License
to Spend, RII Fellows David Blanchett and Michael Finke examine how Americans are far more
likely to achieve their lifestyle goals in retirement through
annuitized income, overcoming the uncertainty of life expectancy
and the reluctance to spend down savings.
Using data from the Health and Retirement Study (HRS), Blanchett
and Finke examine households with at least $100,000 in savings and compare how much money
they could be spending in retirement to how much they are actually
spending based on existing guaranteed income sources and assuming
financial assets are annuitized. They pair these findings with
those of a proprietary survey of 2,051 adults nationwide regarding
behavioral tendencies that may influence their spending in
retirement.
Their analysis centers on the challenge Americans face when
determining how much they're able to spend from their investments
each year in retirement – an inherently difficult task given that
both the length of retirement and returns on assets are unknown. A
retiree can either spend generously and risk outliving their
savings or spend conservatively and miss out on the lifestyle they
envisioned. A retiree who is concerned about outliving their
savings will spend less.
Blanchett and Finke find that every $1 of assets converted to guaranteed income could
result in roughly twice the equivalent spending compared to money
left invested in a portfolio. This effect suggests that the
explanation for under-spending of non-annuitized savings among
retirees is likely both a behavioral and a rational response to
longevity risk.
"Essentially, annuities with lifetime income protection give
retirees a psychological license to spend their savings in
retirement," said Blanchett, Head of Retirement Research at PGIM DC
Solutions. "Retirees clearly prefer to live off income, but many
don't feel comfortable depleting down assets to fund a lifestyle.
This is an unfortunate paradox since funding a lifestyle is
what motivates people to save for retirement, and few retirees
indicate a desire to pass on significant wealth at death."
Finke, Professor and Frank M. Engle Chair of Economic Security
Research at the American College of Financial Services, added:
"Increasing the share of wealth allocated to annuitized income can
not only reduce the risk of an unknown lifespan, it can also allow
retirees to spend their savings without the discomfort generated by
seeing one's nest egg gradually get smaller."
The survey of 2,051 Americans included in Blanchett's and
Finke's analysis finds that 60% of respondents would feel more
comfortable spending on nonessential activities such as going on
vacation or eating dinner with friends in retirement if they
received an additional $10,000 of
income for life than if they had an additional $140,000 of retirement savings (40.6%). The
wealth amount represented the average cost of $10,000 of annuitized income at retirement. The
increased willingness to spend from income was just as high among
retirees who had saved $500,000 or
more.
|
Spend more from
annuitized income
|
Spend more from
savings
|
Full sample
|
59.4 %
|
40.6 %
|
Retirement savings
<$100,000
|
61.0 %
|
39.0 %
|
Retirement savings
$100k to $499,999
|
55.1 %
|
44.9 %
|
Retirement savings
$500,000 or more
|
62.0 %
|
38.0 %
|
Spending Retirement Savings is a Common Cause of
Anxiety
Blanchett's and Finke's analysis corresponds with
findings in the Alliance's 2024 Protected Retirement Income and
Planning (PRIP) Study, a new survey of 2,516 consumers in the
U.S. ages 45 to 75 regarding their attitudes and behaviors toward
retirement savings.
Nearly half of retirees (46%) acknowledge that spending their
savings gives them anxiety. The level of discomfort is tied to
asset levels: 55% of those with less than $100,000 in assets are anxious about their
spending in comparison to 48% of those with assets between
$100,000 and $500,000. Nearly a third of retirees (32%)
indicate they are spending money faster than they anticipated.
Compounding the anxiety of many Americans is the lack of
confidence in the long-term solvency of Social Security. Only 58%
of respondents are confident Social Security will provide income
for the rest of their life.
About The Alliance for Lifetime Income
The Alliance
for Lifetime Income (ALI) is a non-profit 501(c)(6) consumer
education organization based in Washington, D.C., that creates
awareness and educates Americans about the value and importance of
having protected income in retirement. Our vision is for a country
where no American has to face the prospect of running out of money
in retirement. The Alliance provides consumers and financial
professionals with unique educational resources and interactive
tools to use in building retirement income strategies and plans. We
believe annuities – one of only three sources of protected lifetime
income – can be an important part of the solution for retirement
security in America. The Alliance's Retirement Income Institute
houses the leading retirement scholars and experts who create
evidence-based research and analysis, with practical ideas and
actions to help protect retirees.
Contact: Suzy Wagner
(703) 899-3427
Suzy@alincome.org
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SOURCE Alliance for Lifetime Income