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Boomer Nest Egg Anxiety: Will it Produce Enough Monthly Income?


I've yet to see a survey of actual Baby Boomer nightmares, but the steady stream of retirement planning surveys convinces me a common dream must be along the lines of: You're in the cockpit of a jumbo jet that is nearing its destination....and you have absolutely no clue how to ease the plane in for a smooth landing. That seems to be a pretty spot-on representation of the anxiety pre-retirees are feeling feel about the prospect of having to take control of managing their 401(k) and IRA lump sums in retirement. How the hell do I make sure I don't screw this up and spend my money so fast it runs out before I do?

My latest data point for Boomer Nest Egg Withdrawal Anxiety is the just-released Merrill Lynch Affluent Insights Quarterly Survey that checks the pulse, if not the dream cycle, of individuals with at least $250,000 in investable assets (not including home equity.) According to the survey, 73 percent of Baby Boomers between the ages of 51-64 are most concerned with "Ensuring my Retirement Assets Will Last Throughout my Lifetime."

Andy Sieg, head of Merrill Lynch Wealth Management's Retirement and Philanthropic Services explained "[there is ]demand for retirement income to be simpler and more intuitive. Regardless of asset levels this is something that keep Americans up at night."

A great first step to helping ease the nightmares would be for Washington to get behind the Lifetime Security Act introduced by a bi-partisan trio of Senators last year. The elegantly simple proposal of the LSA is to add information to everyone's 401(k) statement that would show the annual income stream your current balance would provide in retirement. Knowing what your lump sum converts to in monthly-income terms is just the sort of data point every worrying Boomer needs to have.

In the meantime, below are a few different ways to get a decent estimate of what your lump sum might generate in terms of a monthly retirement income. Blog colleague Steve Vernon recently mentioned a few solid calculator options. The Ballpark E$timate calculator is indeed a straightforward quick (and free) calc, but it has the drawback of requiring you to plug in assumptions, such as what you think the inflation rate will be, your anticipated salary growth rate, and how long you expect to live. That's just a whole lot of opportunity to plug in faulty assumptions.

In addition to the Fidelity Retirement Income calculator Steve mentioned, here are a few other retirement calcs (none require registration) that handle most of the assumptions for you:

  • T. Rowe Price Retirement Income calculator. Pre-retiree Boomers should select the Transitioning option on the first page: the calculator will then run the numbers to help you figure out how much you might be able to withdraw in retirement. And it has the nice touch of generating a Social Security estimate for you, rather than requiring you to go fetch the info yourself at the Social Security Benefits Estimator.
  • Merrill Lynch New Retirement Illustrator. The "New" in retirement is the need/desire to spend a few years continuing to work once you're retired from your "career" work. This calc does a nice job of showing you how continuing to work in retirement (but with no further savings during your transition period ) will reduce what you need saved up in retirement. It's encouraging to see how delaying full retirement just a few years can right any wobbly retirement plan.
Of course, no simple calculator is a replacement for a carefully considered retirement plan. And you need to remember that plenty of those monthly income estimates will be reduced by the taxes due on your Traditional 401(k) and IRA withdrawals. But the calcs are a decent starting point for beginning to understand what sort of monthly income stream your nest egg will be capable of generating.

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