Boomers in Transition - How to Craft Your Retirement Plan
The Great Recession might be officially over, but that doesn’t mean boomers have forgotten the devastation it caused on their retirement accounts and the shockwaves that are still impairing the economic recovery.
Despite Wall Street’s recent rally, boomers aren’t ready to jump back into equities to fully fund their retirement. According to the Allianz Life 2013 Transition Boomers and Retirement Income Survey, boomers nearing retirement said they are looking for more a guaranteed return than what Wall Street has to offer.
Katie Libbe, vice president of Consumer Insights for Allianz Life Insurance Company of North America, explains what boomers are looking for when it comes to funding their nest eggs and how they can prepare their finances as they head toward retirement.
Boomer: What did the survey find regarding transition boomers and what they want most for their retirement savings?
Libbe: The Allianz Life 2013 Transition Boomers and Retirement Income survey found that despite strong market performance so far in 2013, transition boomers (ages 55-65) would rather have guarantees in their retirement portfolio than risk losing money to market downturns.
Eighty-seven percent of the boomers we surveyed said they would prefer a financial product with 4% return that was guaranteed not to lose value over one with 8% return that was vulnerable to loss. While not surprised that transition boomers are seeking more protection for their money as they get closer to retirement, we were startled by the overwhelming majority that selected the guaranteed product, especially since the survey was taken shortly after the Dow Jones Industrial Average broke the historic 14000 mark in late February.
People tend to get caught up in media coverage about the ups and downs of the stock market, and often pattern their saving and investing habits after the most recent financial headlines - but this survey proves this segment has a long memory and does not want to make the same mistakes as those that plagued people during the 2008-2009 financial crisis.
Boomer: What do transition boomers believe to be their most important financial objectives before starting retirement?
Libbe: According to the survey, increasing their savings is the top priority for the majority of transition boomers, which is definitely a positive step toward building more security in retirement. Perhaps more importantly, they also noted a desire to implement a withdrawal strategy to ensure they don't outlive their income. This is significant as withdrawal strategies and retirement income are a part of the retirement planning process that don't get as much attention. The transition period, 5-10 years before the start of retirement is the perfect time to start thinking about these topics and how to shift from years of accumulating savings to turning those savings into retirement income.
Boomer: What are withdrawal strategies?
Libbe: Withdrawal strategies are an essential part of a larger retirement plan and essentially address the best way to take your money out of various savings accounts and ensure that your money lasts as long as you do.
The retirement planning industry is very focused on helping people with the accumulation side of the ledger, but needs to do a better job of emphasizing the importance of the income phase and how people should withdraw money out of their accounts. Factoring in things like Social Security, required minimum withdrawals from retirement accounts and taxation issues, determining the best withdrawal strategy for your specific situation can be a very complicated process. It's best to work with a financial professional who can help guide you through these complexities.
Boomer: How can annuities address these key retirement issues?
Libbe: Annuities provide a built-in withdrawal strategy - much like pension plans - because they allow you to set aside a specific portion of your savings and have that money guaranteed to come back to you in the form of monthly retirement income, similar to receiving monthly payments from an employer.
After any "needs" are met with income from an annuity, you can have a much better idea of what your retirement lifestyle will look like and how you can fulfill the "wants" and "wishes" that make retirement something to look forward to. For Americans to feel more secure about retirement, "re-pensioning" needs to take place and annuities can play a crucial role in that process.
Boomer: Although the survey indicated general knowledge about annuities is low, is there anything encouraging to take away regarding Transition Boomers' understanding of the product?
Libbe: One encouraging result is in respondents’ opinions about the most desirable features of an annuity, 47% of respondents indicated they found the "opportunity for increasing income during retirement to help keep pace with inflation" as desirable. This indicates some recognition about the innovations made with annuities over the past five years and the fact that annuity providers are designing products that can address things like inflation and rising healthcare costs in order to help people achieve a more stable retirement. These variables are very difficult for people to handle on their own, so it's important that they learn more about how annuities can be a useful part of their retirement portfolio. The financial service industry knows that boomers want the things that annuities can offer, so we need to continue to provide new innovations and better education about how the products work.