Converting Assets to Income in Retirement: What Near-Retirees are Thinking

October 2009
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Savings is necessary but not sufficient to generate a secure and adequate lifetime income for retirees. In retirement, savings must be managed and used to generate a stream of income. Annuitization is the only means to convert savings into an income stream guaranteed to last the lifetime of a retiree. This report examined the concerns of savers approaching retirement age in the higher education sector regarding managing that savings in retirement and their plans for converting it into income. Two-thirds of higher education near-retirees are concerned about outliving their savings and about choosing the best way to draw income from their savings.Thirty-seven percent of near-retirees intend to draw income from their retirement savings through regular periodic withdrawals of a fixed percentage of savings. Withdrawing only the minimum amount required by law and annuitizing some or all of their retirement savings were chosen by 29% and 25%, respectively. Among those planning to annuitize some or all of their retirement savings, the security of a guaranteed lifetime stream of income was by far the greatest motivation. It is clear that consultation with a financial advisor can be of real value to individuals in this regard. Near-retirees who have consulted with a financial advisor specifically about drawing income from savings in retirement appear better prepared for making such decisions. These individuals have devoted more thought to managing their savings in retirement and drawing income from it, and they are more confident in their understanding of the options for converting savings to income. Twenty-nine percent of those who have consulted with an advisor on drawing income from savings plan to annuitize some or all of their retirement savings compared with 24% of those who have not consulted an advisor on the topic.