Spending Retirement Savings is Keeping Americans Up at Night

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Nov 19, 2024, 09:02 ET

WASHINGTON, Nov. 19, 2024 /PRNewswire/ -- Nearly half of America's retirees (46%) say spending their savings creates anxiety and is having an emotional toll on them and nearly a third (32%) are spending money faster than they expected, according to the most recent chapter of the Alliance for Lifetime Income's 2024 Protected Retirement Income and Planning (PRIP) Study.

ALI's study is based on a survey of 2,516 consumers, ages 45-75, and found inflation or cost of living (82%) and healthcare costs (70%) as the top two issues having a negative impact on their spending in retirement or ability to save for retirement.

Not having a clear plan for drawing-down savings and knowing how to generate income in retirement are major contributing factors to people's anxiety. Alarmingly, fewer than a third of respondents (32%) said they have a specific income plan in place for retirement. 41% said they don't know how to stage withdrawals from their accounts, and fewer than half (49%) know how to handle required minimum distributions (RMDs) or minimize taxes, both essential pieces to sound retirement income planning.

Respondents with investments said these three tasks are nearly equally difficult or confusing when it comes to planning:

#1 – Prioritizing which things to spend money on;

#2 – Estimating how much money to set aside for healthcare costs;

#3 – Determining how to sequence withdrawals from their accounts.

Compounding people's anxiety is the lack of confidence in the long-term solvency of Social Security, which 90% say is important to their retirement income needs. Over a third (37%) of consumers have already started claiming Social Security, with 67% saying they did so because they are disabled or needed income, while 28% started early withdrawals out of fear Social Security will not be available or their payments will be cut, or they will die before reaching full retirement age. The overwhelming majority claiming Social Security (73%) decided to do so on their own, while only 9% said the advice of a financial planner helped them the most in making the decision.

"It can be a very emotional thing when you wake up one day and realize that paycheck from work won't be coming, and you're left with a lump-sum of money that has to last for what could be 20, 30 or more years," said Jean Statler, CEO of the Alliance for Lifetime Income. "If there's just one thing you can do to prepare and lower your anxiety, it's having a clear retirement income plan. And the most important thing in that plan is having enough protected income between Social Security, annuities, or a pension, to cover your basics – those essential expenses you have to pay for like housing and food."

The survey was conducted as part of ALI's ongoing tracking of American consumer confidence about retirement readiness. ALI has defined this era as PEAK 65 because more Americans are retiring than any period in the nation's history, with 11,200 people turning 65 every day and 4.1 million Americans retiring each year now through 2027.

License to Spend

The retirement anxiety many Americans confess to having corresponds with a June 2024 study, Guaranteed Income: A License to Spend, which concludes that retirees with assets that annuitize income spend twice as much as retirees with an equal amount of non-annuitized savings. Alliance for Lifetime Income's Retirement Income Institute Fellows 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 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.

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.

Other Key Findings in Chapter 4 of PRIP:

Retirement is a beginning: Most consumers say retirement is a "beginning" (77%) rather than an "ending".
Consumers are looking for Protection in retirement: 97% consumer say having Protected lifetime income in addition to Social Security in retirement is valuable. Among consumers who already own annuities, 96% consider them extremely or somewhat important to their financial security.
Financial professionals believe annuities give their clients a license to spend: 63% of financial professionals believe clients could spend more money in retirement if they added protected income from an annuity to help cover basic monthly expenses.
Lack of understanding between protected income and probable income: Consumers are more likely to believe a 401(k) (58%) or IRA (54%) provides protected income than annuities (40%).

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 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, live retirement planning webcast shows, 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
[email protected]

SOURCE Alliance for Lifetime Income