The Importance of Guaranteed Income During Retirement

The high costs of retirement mean that most people won’t be able to rely on simply withdrawing from their savings—they’ll need to generate some sort of income through investments.

Two new TIAA-CREF surveys highlighted the troublesome facts of American retirement saving. Nearly three-quarters of Americans don’t have or are unaware of lifetime income options through retirement plans, which could make it difficult for the 37% looking to retire early.

“Far too many people believe they will be able to live in retirement by just drawing down their savings,” Teresa Hassara, executive vice president of TIAA-CREF’s Institutional Business, said in a statement. “But as people live longer and health care costs increase, this approach leaves people at risk of outliving their savings. Every withdrawal decreases the pool of assets needed to weather down markets, and rising inflation can make it necessary to draw more income than expected.”

In one survey, just a third of workers who participates in a retirement plan say the primary goal is to generate guaranteed monthly income, but 72% say they either don’t have or are unaware of this option. The second survey found that 21% of workers reported having not saved anything for retirement and 44% are saving 10% or less of their current annual income. Experts recommend saving at least 10% to 15%.

“The survey shows that most Americans underestimate the amount of retirement income they will need,” Hassara added. “But a bigger concern is that more than one-fifth of Americans are not saving at all for retirement, and many more are not saving enough.”

According to the survey, 33% of workers believe they will need just 25% to 50% of pre-retirement income to maintain their standard of living and another third think 50% to 75%. However, experts recommend 70% to 90%.

TIAA-CREF found that 44% of respondents are somewhat or very concerned they may run out of money in retirement while just 21% expect to receive income from annuities.

“Retirement security is too important for wishful thinking and guesswork,” Hassara explains. “A more reliable strategy is to guarantee a portion of savings as income you can’t outlive to help cover essentials, like food and housing. Annuity payments create an income stream that lasts for life, even if your retirement stretches for 30 or 40 years.”