Gone are the days when the word “retirement” conjured up a do-nothing, rocking chair existence.
Today’s retirement is a whole different ballgame. We now know that retirement is really a process, and that it involves a continuum that changes over time.
Retirement could last 30 years or longer, so day one of retirement is unlikely to look like day 10,950. For some, retiring includes part-time work and travel, and for others it includes golf and family.
Retirement can mean different things to different people. However, a recent TIAA study, the 2017 Transition to Retirement Survey, shows that there are three common themes that almost all Americans are looking for in retirement.
The survey was conducted by KRC Research from March 14–20, 2017, using an online survey of 1,000 Americans ages 55-68 who are planning to retire within the next five years.
The purpose of the study was to find out what characteristics people perceive as important to a successful retirement. Three common denominators emerged.
First, people want to experience freedom from financial worries in retirement.
This should not come as a surprise as 95% of respondents stated that freedom from financial concern is important to their definition of success in retirement.
Finances clearly play a significant role in retirement.
A properly funded retirement plan can help the retiree meet day-to-day needs like housing and health care while also allowing the retiree to travel or leave a legacy to heirs. However, just having a boat load of money saved for retirement will not do the trick.
Retirees also need a well-developed retirement income plan that is up to the challenge of converting that savings into a secure and steady stream of income.
Second, Americans want flexibility in retirement. Almost all respondents, 96%, stated that having the flexibility to do what they want in retirement is an important component to their definition of a successful retirement.
This desire for flexibility also hinges on having a sufficient amount of money saved for retirement, but again, it requires more than that. Without proper planning for funding the span of retirement, individuals will not be able to do all the things they want to do in retirement.
Retirees lacking the proper planning could end up self-insuring many retirement risks, and that could cause the individual to lose flexibility in the use of his or her finances.
Without a comprehensive plan in place, the retiree will continue to worry throughout retirement about whether or not he or she will have enough money to meet basic needs. Such ongoing concerns can seriously restrict an individual’s willingness to spend precious assets on vacations, travel, and other non-essential retirement options.
Third, retirees want to spend time with family, to relax and travel as part of a secure retirement.
For instance, 93% of the survey respondents stated that spending time with family was important for a successful retirement, 92% stated that relaxing was an important factor, and 80% stated that having the time to travel was crucial to a successful retirement plan.
In short, the vast majority of Americans still want to spend retirement relaxing with family and traveling. A retirement plan that does not provide resources to pay for those activities really does not meet their definition of a successful retirement.
So, make sure your retirement plan allocates funding for travel and relaxation.
While responses were consistent about the elements that are important for a successful retirement, the actual planning to ensure for a successful retirement was far from consistent.
Despite the desire to take financial uncertainty off the table, very few respondents, just 17%, had purchased an annuity. Respondents with an annuity in place felt more prepared to manage their income in retirement than those who would, instead, draw down their retirement savings over time. This makes sense because the annuity can ease retiree concerns about having enough income to last for life.
Diane Garnick, chief income strategist for TIAA, noted another very troubling finding in the data.
A surprising 47% of respondents are planning for a period of less than 20 years in retirement. However, Diane noted that, for a 65-year-old couple, there is a very high probability that at least one of them will live beyond age 85 and a decent chance that one of them will live to age 100.
Only 21% anticipated that their retirement savings nest egg would last for their entire lifetime. This highlights a huge gap between the reality of longevity, and planning for longevity. Such a discrepancy could leave many people short on funds later in retirement.
If you want what other Americans want in retirement – security, flexibility, and relaxation – planning is a must. It starts with saving enough money, but does not stop there.
Consider how you will turn that nest egg into income in retirement. Consider whether an annuity fits into your plan, as it can provide a steady and reliable source of income throughout retirement, easing the burden and concerns of withdrawing money from a volatile portfolio.
While annuitizing all of your money is often not a good idea, partially annuitizing some savings to cover your housing and health care costs can be an effective strategy.
Finally, make sure to plan for longevity risk. Don’t underestimate your life expectancy. Make sure you will have enough money to last as long as you do by taking reasonable withdrawals from your investment portfolio. Retirement planning is challenging, but planning can go a long way to meet your goals for a successful retirement.
