In June of 2011 the Government Accountability Office (GAO) published the report “RETIREMENT INCOME: Ensuring Income throughout Retirement Requires Difficult Choices”. The GAO was, refreshingly, quite blunt about the environment in which current and future retirees exist. The report states:
As life expectancy increases, the risk that retirees will outlive their assets is a growing challenge. The shift from defined benefit (DB) pension plans to defined contribution (DC) plans also increases the responsibility for workers and retirees to make difficult decisions and manage their pension and other financial assets so that they have income throughout retirement.
In the summary letter to Chairman Senator Herb Kohl the letter states:
Today, a husband and wife both aged 65 have approximately a 47 percent chance that at least one of them will live to his or her 90th birthday and a 20 percent chance of living to his or her 95th birthday. In addition to the risk of outliving one’s assets, the sharp declines in financial markets and home equity during the last few years and the continued increase in health care costs have intensified workers’ concerns about having enough savings and how to best manage those savings in retirement.
This is not new to readers here. A previous blog post, “A record 51% doubt they can pay for medical expenses in retirement”, noted that consumers are seriously concerned about their ability to meet expenses in retirement.
So, what to do? The report continues and states:
Financial experts GAO interviewed typically recommended that retirees systematically draw down their savings and convert a portion of their savings into an income annuity to cover necessary expenses, or opt for the annuity provided by an employer-sponsored DB pension instead of a lump sum withdrawal. Experts also recommended that individuals delay receipt of Social Security benefits until reaching at least full retirement age and, in some cases, continue to work and save, if possible.
Clearly, individual situations vary. Just as clearly, the GAO believes that annuities should be considered as an option for diversifying your portfolio and decreasing the risk in your retirement assets. Check with an advisor to determine how you may benefit from an annuity.
The full text of the report can be found at http://www.gao.gov