Despite the challenges of saving enough for retirement, a surprising number of Americans between the ages of 55 and 64 haven't planned how they'll withdraw money during retirement from defined contribution plans.
The importance of financial planning cannot be stressed enough. Following a written (or unwritten) plan can prevent poor investment choices based on emotion, bump you into millionaire status or allow you to spend retirement in style without the worry of potentially outliving your savings.
And yet there are plenty of Americans who simply haven’t gotten around to creating a plan. A 2013 Nationwide Financial survey of adults with $100,000 or more in investable assets found that a quarter of respondents didn’t have a financial plan. A fifth didn’t believe they needed a plan and 31% admitted they “just have not gotten around to it yet.”
And while the Nationwide study included anyone over the age of 18, apparently, wisdom doesn’t come with age.
A new survey from the LIMRA Secure Retirement Institute (LIMRA SRI) found that 27% of US workers between the ages of 55 and 64 have not planned how they will use their defined contribution (DC) plan savings during retirement. Women are much more likely than men to have no plan (38% to 19%).
“It is 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,” Matthew Drinkwater, associate managing director, LIMRA SRI Research, said in a statement. “Many believe that they can delay retirement indefinitely, or work in retirement, so it’s possible they feel that there’s no near-term need to engage in this kind of planning.”
With people retiring earlier than anticipated, expecting to rely on delaying or working in retirement can be risky, Drinkwater said. Before it becomes an issue, people should give thought to how to use their DC plans.
Two-thirds of the survey’s respondents plan on making withdrawals, while just one in 6 plan to convert some or all of their balance into a guaranteed lifetime income, according to the results.
Just a quarter of those with a specific income-generation strategy expect to make systematic withdrawals from retirement savings while a much larger amount (65%) say they’ll withdraw money either when it’s needed or on an occasional basis.
Similar to the respondents in the Nationwide survey, the largest segment of respondents who haven’t created a retirement income strategy admitted simple procrastination is at fault (42%).
“Going through the planning process during the pre-retirement years may prompt changes in their savings behavior, how they allocate their assets or the decision to purchase other retirement products,” noted Drinkwater. “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.”