Will procrastination torpedo your retirement?

If you’re age 55 or older, here are two critical questions for you: Do you know how you’ll use your retirement savings when you retire? Do you have a specific strategy for using your savings to generate retirement income?

You wouldn't be alone if you answered no to either or both of these questions. According to a recent survey conducted by the LIMRA Secure Retirement Institute (SRI), one out of four older workers answered "no" to the first question, and three out of four answered "no" to the second.

"It's surprising that such a large proportion of older workers have failed to do this basic level of income planning when most are within 10 years of retirement," said Matthew Drinkwater, associate managing director, LIMRA SRI Research.

Among the three-quarters of older workers who lack a retirement income strategy, by far the most common reason cited was simple procrastination: 42 percent of older workers simply haven’t gotten around to coming up with a plan. Nearly a quarter of older workers also said they were not close enough to retirement to create one.

Let me tell you this: If you’re age 55 or older, you’re old enough to need a strategy for developing income in retirement.

Another interesting finding from the LIMRA SRI study is that women are much more likely than men to avoid planning how they'll use their defined contribution assets (38 percent of women vs. 19 percent of men). But this is particularly short-sighted, since women usually live longer than men and need to make their savings last for a longer period.

Given the decline of traditional pension plans that pay you a lifetime monthly retirement income, learning how to generate retirement income from your 401(k) or other retirement accounts is one of the most critical retirement planning tasks facing older workers today. Here are two commonly used ways to generate regular retirement income from these accounts, each having their pros and cons and each having many variations:

  1. Systematic withdrawals, where you invest your savings and use a method for withdrawing principal and interest over your expected lifetime

  2. Immediate annuities, where an insurance company guarantees to pay you a monthly income no matter how long you live

As an employee, would you pay more attention if your boss offered you the chance to make decisions that could significantly affect your paycheck? Most people don’t have much control over their pay, but they'd likely jump at the chance to influence their income. So why not get motivated about your retirement income? During retirement, you have the ability to significantly influence the amount of your retirement paycheck through a studied choice of your options, since each method of generating retirement income provides significantly different amounts.  

The LIMRA SRI study is yet more evidence that many of our retirement planning challenges are behavioral in nature. Some people might feel capable of developing their own retirement strategies, and if that describes you, more power to you! There’s plenty of good information and software that will help you plan your retirement.

But if you’re not the type to develop a well-thought-out retirement plan and you don’t have the willpower or discipline to stick to a plan, then it makes sense to acknowledge that you need help. In this case, find an advisor who's skilled and trained in generating retirement income and has your best interests at heart.

There are good reasons for taking the time to learn about generating retirement income from savings. As Drinkwater noted, “Ultimately, our research has shown that people who take the steps to plan for retirement are more likely to feel more confident in their ability to be financially secure throughout their retirement.”


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    Steve Vernon helped large employers design and manage their retirement programs for more than 35 years as a consulting actuary. Now he's a research scholar for the Stanford Center on Longevity, where he helps collect, direct and disseminate research that will improve the financial security of seniors. He's also president of Rest-of-Life Communications, delivers retirement planning workshops and authored Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck and Recession-Proof Your Retirement Years.

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