Retirement Income: What Do the Experts Recommend?

Last Updated Aug 26, 2011 2:26 PM EDT

Want some free and useful advice on how to generate retirement income? Just pick up a copy of a recent, comprehensive report on how to generate retirement income, issued by the Government Accountability Office (GAO).

As part of its recent study, the GAO interviewed financial planners and other financial experts from academic and industry groups around the country; these experts were asked for their recommendations on generating retirement income for five hypothetical retiree households. The five households were drawn randomly from the Health and Retirement Study (HRS) conducted by the University of Michigan, and are intended to represent a range of household situations.

But in case you don't have time for this "light" summer reading, here's a summary of the GAO's recommendations for each of the selected households:

Household #1: Lowest Quintile Net Worth

  • Total net worth including home equity: $2,000
  • Gross financial wealth: $0
  • Marital status: Single
  • Pension type: None
Recommendations: Continue working and accumulating assets, if possible. Delay Social Security.
Household #2: Middle Quintile Net Worth with 401(k) Plan

  • Total net worth including home equity: $349,000
  • Gross financial wealth: $191,000
  • Marital status: Married
  • Pension type: Defined contribution (such as 401(k)
Recommendations: Purchase annuity and systematically draw down balance of financial assets. Delay Social Security. Continue working and accumulating assets, if possible.
Household #3: Middle Quintile Net Worth with Traditional Pension

  • Total net worth including home equity: $373,000
  • Gross financial wealth: $170,000
  • Marital status: Married
  • Pension type: Defined benefit (traditional pension)
Recommendations: Take defined benefit annuity income, purchase annuity and systematically draw down balance of financial assets. Delay Social Security. Continue working and accumulating assets, if possible.
Household #4: Highest Quintile Net Worth with Significant Retirement Savings

  • Total net worth including home equity: $1,597,000
  • Gross financial wealth: $1,262,000
  • Marital status: Married
  • Pension type: Defined benefit (traditional pension)
Recommendations: Take defined benefit annuity income and systematically draw down balance of financial assets. Delay Social Security.

Household #5: Highest Quintile Net Worth with Substantial Home Equity

  • Total net worth including home equity: $1,518,000
  • Gross financial wealth: $579,000
  • Marital status: Married
  • Pension type: Defined benefit (traditional pension) and defined contribution (such as 401(k))
Recommendations: Liquidate some real estate, take defined benefit annuity income and systematically draw down balance of financial assets. A spouse in poor health should take Social Security early; a spouse in good health should delay.

The experts' recommendations -- continue working, delay taking Social Security benefits, and draw retirement savings down systematically instead of unmanaged spending -- will sound familiar to regular readers of CBS MoneyWatch.
Yet the study documents that many Americans aren't following this advice, noting that 72.8 percent of Americans start taking Social Security benefits before age 65. The news regarding continued work is a little more encouraging -- the percentage of workers aged 60 and over who are remaining in the workforce has climbed gradually since 1994, although it's still at low levels. By 2010, 29.1 percent of people aged 65 to 69 were working, and 6.9 percent of people aged 75 and older were still employed. The study also noted that more than 50 percent of Americans aged 60 to 64 were in the workforce. (No doubt these numbers are influenced significantly by the poor job market.)

All of this just illustrates that the experts' advice is easier said than done. And the title of the study sums it up nicely: Ensuring Income Throughout Retirement Requires Difficult Choices.

I'm a great believer in Americans' creativity and resiliency. We'll make the difficult choices.






Want to learn more about retirement planning? Check out my latest creation -- Money for Life, an innovative, free online retirement planning guide. I've organized a rich collection of more than 150 blog posts, articles, research reports, and video clips on the most important retirement planning decisions regarding money, health, and lifestyle.

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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.