Annuitized Income Retirees Spend Twice as Much as Those Without
Planning for retirement involves making many critical decisions. Among the most crucial is structuring your retirement income.
A recent analysis by the Alliance for Lifetime Income’s Retirement Income Institute (RII) suggests that retirees who annuitize their income tend to spend twice as much as those with an equal amount of non-annuitized savings.
Understanding this distinction can significantly impact your quality of life in retirement.
Findings of the RII Analysis
The Alliance for Lifetime Income’s Retirement Income Institute (RII) conducted an insightful study titled “Guaranteed Income: A License to Spend.”
According to RII Fellows David Blanchett and Michael Finke, retirees with annuitized income are more likely to achieve their lifestyle goals than those relying on non-annuitized savings.
Their research involved analyzing data from a proprietary survey of over 2,000 adults. They found that each dollar converted to guaranteed income can result in roughly double the spending compared to non-annuitized money, due to the comfort of having a stable income.
Spending Retirement Savings Often Causes Significant Discomfort
The discomfort around spending retirement savings is widespread among retirees.
According to the Alliance’s 2024 Protected Retirement Income and Planning (PRIP) Study, nearly half of retirees experience discomfort when tapping into their savings. The discomfort varies by asset level, with those over $100,000 feeling the most uneasy.
The PRIP study also highlighted that one-third of retirees spend their money faster than anticipated, further heightening discomfort.
Confidence in Social Security’s long-term solvency also affects comfort levels, with only 58 percent of respondents feeling secure about Social Security’s ability to provide lifelong income.
The Behavioral Aspect of Retirement Spending
Behavioral tendencies play a significant role in how retirees manage their money.
“The fear of depleting savings often leads to underspending. Even retirees with substantial savings feel more comfortable spending income from annuities rather than drawing down their nest egg,” says Charles Castro, Senior Vice President – Investments at David Lerner Associates, Inc. This reluctance to deplete savings is both a rational response to longevity risk and a barrier to spending.”
The Comfort of Annuities
Annuities provide a sense of security by guaranteeing income for life. This assurance allows retirees to enjoy their savings without worrying about running out money.
The study’s survey indicated that 60 percent of respondents would feel more comfortable spending on nonessential activities like vacations if they had an additional $10,000 annuitized income rather than an equivalent amount in savings.
The Financial Logic Behind Annuitized Income
From a financial perspective, annuitized income can offer better spending power in retirement.
Retirees can confidently budget and spend with a guaranteed income stream, knowing their essentials are covered. This structured approach to income can mitigate the risks associated with market volatility and the uncertainties of life expectancy.
Conclusion
Choosing between annuitized income and non-annuitized savings can significantly influence your retirement lifestyle. The findings by the Alliance for Lifetime Income’s Retirement Income Institute underline the benefits of annuitized income, not only in terms of financial security but also in promoting a fulfilling retirement.
At David Lerner Associates, we are dedicated to helping you make informed decisions about your retirement planning. Contact our team of experts today to explore your options and secure a more confident, enjoyable retirement.
Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.