Spending in Retirement: From Nest Egg to Income
Consider the following two options: 1) You are 55 years old and have $800,000 today to cover your retirement spending, starting at 65. 2) You are offered $4,000 in monthly income, starting on your 65 th birthday and lasting until you die. Which one would you prefer? If you chose option two, you're not alone. Most people prefer a known monthly payment to the complex decision of investing a lump sum to cover their financial needs during retirement. Income versus a nest egg is conceptually more closely tied to what most of us are ultimately interested in for retirement - maintaining our standard of living, continuing to travel, and so on. Traditional pension plans and Social Security have historically filled that role. Today, however, employers are moving away from defined benefit plans, and individuals are concerned about future Social Security benefits. Yet, while the benefits of building a nest egg are well-recognized, relatively few people know whether their retirement savings can generate sufficient annual lifetime income to meet their goals. In other words, while the concept of retirement "accumulation," or amassing a lump sum during one's working years, is widely understood, the other side of the equation - the drawdown or consumption of one's nest egg - is less familiar to many people. And with longer lives, our accumulations may need to stretch into income that lasts 20 or even 30 years.
How does focusing on an income stream help investors overcome suboptimal behaviors?One study required minimum distribution during the same period one study the old mandatory retirement age anchor
Why have people been reluctant to annuitize their wealth?annuities $1.9 trillion $9 trillion higher adoption rates Framing an annuity value is contingent loss-averse
How can individuals shift their investment behavior from accumulating a nest egg to spending in retirement?BlackRock's CoRI