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Saving for retirement is hard enough these days, with wage growth lagging and more than 40 percent of workers lacking access to a workplace retirement savings plan.
What's even harder is figuring out how to draw down those savings when the time comes. Three in 4 respondents to a survey did not know how much they can safely withdraw from savings every year, according to an Ipsos survey for New York Life. Almost a third think they can safely take out 10 percent or more, even though the Social Security Administration estimates that a man turning 65 today will live to age 84. A woman can expect to reach age 86.
"Baby boomers haven't done a great job saving for retirement," said Chris Blunt, president of the investments group at New York Life. "If they now screw up the decumulation phase, we are going to take a bad situation and make it worse."
The survey of 810 people was conducted in late March. It was limited to people age 40 and older with incomes and assets of at least $100,000 — a segment of the population that should be relatively well informed on financial matters, Blunt said.
Yet they were not. For example, 9 percent thought it would be all right to withdraw 15 to 24 percent of their savings annually. Even with positive investment performance, that would almost certainly deplete a nest egg within a decade.
The widespread confusion about how and when to draw down retirement savings could be especially hazardous to many older Americans because millions are facing retirement with little in the way of guaranteed income.
Social Security is available to almost everyone, but the average monthly check for retired workers is just $1,341. And while a number of workers retiring today can still also depend on income from a defined benefit pension plan, those traditional pensions are fast disappearing. Some 73 percent of the 102 plans in a 2015 survey by NEPC, a consulting firm, were either closed or frozen, up from 64 percent.
Part of the confusion around withdrawing savings is that there is no strong consensus on the optimal strategy.
Retirement experts long recommended that people draw down savings at a rate of 4 percent a year, but years of low interest rates have made that approach questionable.
The optimal rate for withdrawals also depends on how large the savings are relative to the income a retiree needs, and how they are invested. Historically, portfolios with more stocks than fixed income have outperformed those invested more conservatively, but not all retirees have the stomach for stocks later in life.
Some experts now advise adjusting your drawdown rate based on how the stock market is performing. When stocks have a bad year, the experts advise that you withdraw less and leave more of your money in savings to benefit from the eventual upturn. In good years, you can withdraw more.
Another challenge is that financial advisors generally are less informed on drawdown strategies than they are on accumulating savings, Blunt said.
"The vast majority of financial advisors are in their 40s and 50s, or early 60s, and they have been trained on asset accumulation," he said. "This whole field of retirement income has come about in a big way probably in the last 10 or 15 years." One of the most popular professional designations advisors are currently earning is that of Retirement Income Certified Professional, he said.
With a new field comes new financial products, of course, and insurers like New York Life and others have rolled out different kinds of annuities in the past few years. Blunt said many have been selling very well.
If you steer clear of contracts with overly high fees, annuities can be one way to guarantee some income in later life. But when it comes to a basic understanding of how and when to use retirement savings, most people are coming up short.