Many Americans have two options when it comes to having financial security later in life. They can either work longer or save more. If you don’t want to work into your 70’s, you should be saving more during your working years and considering annuities to create income later in life. Insurance News Net’s Linda Koco summarized recent survey results for the article “Work Longer Or Save More: Which Will It Be?” The survey was performed by Aon Hewitt and included 2.1 million workers at 77 large companies in the United States. An average person will need to save 11 times their salary at age 65 in order to keep the same lifestyle after retirement. The survey looked at how close Americans are to this goal and what they can do to catch up and change this negative forecast.
This particular survey found that the median age Americans will be able to retire while maintaining financial security is 68. Many more will have to work longer than this. Sixteen percent of workers still won’t be able to maintain their lifestyle even if they work until age 75. Only 20% of workers will be able maintain or exceed their pre-retirement lifestyle if they retire at age 65, but another 20% will be reasonably close with some minor lifestyle adjustments. This means that 60% of workers won’t be able to afford to retire at age 65. There are two actions that will help improve these statistics. Workers must start saving early in their working years and contribute as much as possible to available defined contribution plans automatically. Seventy percent of those who have automatic defined contribution plan deposits will have “near adequate resources” to retire at age 65. You will have to make up for shortcomings if you save less, start later in life, or have poor investment choices.
Unfortunately, there are many people who are not making retirement planning a priority. The survey found that 60% of workers have not created a financial plan. Only 54% of workers have thought about their retirement savings and income needs. The first thing that American workers need to do is to determine their retirement goals and make a plan to get there. Some people will need to save more, others will need to work longer. Annuities are a piece of the retirement planning puzzle that more Americans are turning towards. Annuity products help ensure that a workers’ savings will last as long as they live and often create a income stream that rivals the pensions of the past. The options include annuitization, buying an income annuity, or opting for a guaranteed income rider on a current annuity. Americans are also purchasing more deferred income annuities. Then they have flexibility with their money during the first few decades of retirement knowing that they will have income coming in at age 80 or 85. Through the use of QLACs in 401k and other defined contribution plans, workers can purchase these annuities and avoid required minimum distribution rules on some of their retirement savings.
The overall consensus is that Americans have work to do to better prepare for retirement if they want to maintain their current lifestyle for as long as they live. Some ways to improve your retirement outlook are to save more, work longer, and look into annuities to help create income during retirement. If you have any questions about creating an income stream with annuities, contact an expert at Annuity FYI.
Written by Rachel Summit