More than half (58 percent) of American adults feel confident that they can successfully turn their retirement savings into income after they stop working, according to the "2016 TIAA Lifetime Income Survey."
Only 35 percent are concerned about running out of money in retirement, the report reveals. Yet that confidence could be misplaced.
Fewer than half (46 percent) know how much they have saved in their retirement savings accounts. And just 35 percent know how much monthly income they'll have in retirement.
The survey highlights this and other disconnects when it comes to retirement planning:
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41 percent are saving 10 percent or less of their income for retirement, while experts recommend people save at least 10 to 15 percent.
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63 percent of those who are not retired estimate that they will need less than 75 percent of their current income to live comfortably in retirement, but most experts recommend that individuals aim to replace 70 to 100 percent of their pre-retirement income.
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28 percent of respondents who are not retired are not saving anything for retirement. Yet fewer than half (47 percent) of those not saving are worried about not having enough money in retirement.
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49 percent say that their retirement plan's No. 1 goal should be to provide guaranteed monthly income in retirement, but 41 percent are unsure if their current plan provides an option for lifetime income.
"Today, people are living longer and spending more years in retirement, which can mean outliving their retirement savings if they don't plan carefully for the years ahead," says TIAA President and CEO Roger W. Ferguson, Jr. "Saving is crucial, but it's not enough.
"Workers also need to take a realistic look at what their expenses will be, and make a plan to generate reliable monthly income to cover those expenses in retirement," he adds. "Guaranteed income for life is critical to a long, comfortable retirement."
Planning for lifetime income
Understanding how to create income in retirement doesn't just help people succeed in the long run; it can bolster their confidence today. Only 28 percent of those who have analyzed how their savings will translate into retirement income are concerned about running out of money after they stop working, as opposed to 40 percent of those who have not done the analysis.
Americans are turning to many sources for generating monthly income in retirement, the survey notes. Seventy-three percent of respondents plan to use Social Security, and 29 percent will use funds from a defined benefit pension plan.
Fifty-four percent will rely on withdrawals from retirement accounts like a 401(k), 403(b) or IRA, but relying on withdrawals could mean outliving their retirement savings. Only 14 percent plan to use annuities, even though the vehicle can turn savings into guaranteed income throughout retirement.
"Too often overlooked, annuities can provide income for as long as you live, even when your other retirement savings run out," says Ferguson. "Rather than attempting to stretch a lump sum of savings over a retirement that could last several decades, retirees can budget for living expenses and better weather unexpected challenges if they have a reliable source of monthly income."
When given a choice among several lifetime benefits, 68 percent would first choose a retirement "paycheck" that lasts as long as they live over shinier options like an unlimited lifetime airline ticket (9 percent) or a new car every year for the rest of their lives (9 percent). However, only 43 percent are willing to commit a portion of their retirement savings to a choice that would allow them to receive a monthly payment for life.
Retirement income strategies vary
Despite a common desire for reliable monthly income in retirement, the survey results capture differences among generations and among income levels when choosing savings vehicles to generate that income. For example, 84 percent of baby boomers plan to rely on Social Security for retirement income, while 69 percent of Gen X and 61 percent of Gen Y say the same. Gen Xers and Gen Yers are more likely than boomers to plan on withdrawals from retirement accounts.
Millennials are the most unfamiliar with annuities: 20 percent say they are familiar, compared to 38 percent of Gen Xers and 41 percent of boomers. However, millennials are most likely to say they would be willing to commit a portion of their retirement savings to a choice that will allow them to receive a monthly payment for life.
