Unraveling the US Retirement Income Crisis: Key Insights

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The Unprepared Retiree: A Growing Concern

Americans near retirement or recently retired are still not prepared, according to a new survey, “Americans Change Retirement Savings Strategies,” from the Alliance for Lifetime Income (ALI). The ALI is a nonprofit consumer organization that educates Americans on how to protect their retirement.

Jason Fichtner, a senior fellow and head of the Retirement Income Institute, and chief economist at the Bipartisan Policy Center, stated that “Today, many Americans are facing a retirement crisis because they are at risk of running out of money in their retirement.”

Why Are Retirees Struggling?

Fichtner explained that this is the first retiring generation in which more than half do not have a pension to cover part of their retirement costs. “That makes this the first generation where the majority must rely on their own savings efforts to prepare for retirement.”

An additional issue contributing to the retirement crisis is the upcoming “Peak 65” event, during which 10,000 people a day are turning 65, and that number will increase to 12,000 a day next year. Many of these individuals do not have the savings and protected income they need to retire comfortably.

Key Findings from the Survey

  • 51% of consumers between 45 and 75 feel they do not have enough retirement savings to last their lifetime.
  • 32% are not confident they will have enough money in retirement to cover basic monthly expenses.
  • 44% are retired currently or retired previously and have gone back to work.

Growing Demand for Annuities and Protected Income

The survey also revealed that consumers want 80% of their retirement savings to be invested in safer investments. Those protected by a pension or an annuity have a significantly more positive outlook on their retirement prospects.

Consumer demand for annuities has skyrocketed to an all-time high due to concerns about unprecedented market volatility and falling retirement investments.

Understanding Annuities

An annuity can be structured like a personal pension you can purchase from an insurance company to turn a portion of your retirement savings into a predictable paycheck. There are many annuity types available today, each with different features, benefits, and costs. They basically fall into three main categories:

  • Fixed: Protects your principal from market downturns and offers a fixed rate of interest for growth and guaranteed monthly payments.
  • Fixed Index: Protects your principal from market downturns, offers a minimum crediting rate with potential for additional interest based on market indexes, and guaranteed monthly payments.
  • Variable: Offers the potential to grow your money through various market investments, but with the potential for market loss, and the option of receiving guaranteed monthly income payments.

Who Should Consider Annuities?

Annuities may be a good choice if:

  • Social Security isn’t enough to cover your basic expenses.
  • You expect to live a long time and could potentially outlive your savings.
  • You want to reduce risk and protect part of your portfolio.

The Importance of Diversification

Diversification is more important than ever, especially when building a comprehensive retirement portfolio. Consider the types of accounts you own – taxable, tax deferred (IRA, 401k) – as well as the types of investments you own – stocks, bonds, mutual funds, ETFs, and annuities.

How Risk Tolerance and Time Impact Retirement Savings

Peter J. Landry, the director of insurance and annuities for Wells Fargo Wealth & Investment Management, explains that a consumer’s risk tolerance is crucial when considering retirement savings. “It would be inappropriate, for example, for a risk-averse consumer to invest their retirement savings in a product solution that provides a great deal of exposure to market volatility.”

However, younger individuals should consider having some market exposure to grow their retirement savings over time and keep pace with inflation. Additionally, having time before needing assets allows for the time value of money to work in providing growth for investments being accumulated for retirement.

Story at www.foxbusiness.com – 2023-06-25 18:33:45

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