More than a third of respondents to a new retirement industry survey feel the so-called "4% safe withdrawal rule" is no longer a valid retirement income strategy due to the pressures caused by inflation, longer lifespans and market volatility.
In fact, according to the Alliance for Lifetime Income's 2023 Protected Retirement Income and Planning study, a sizable and growing number of Americans feel such rules of thumb should be replaced with other retirement income approaches, including those that incorporate various types of income guarantees.
As quoted in the new report, Jean Chatzky, education fellow at the Alliance's Retirement Income Institute and founder and CEO of HerMoney, says people are coming to understand that today's retirees are living longer than previous generations — and they want greater certainty that they won't outlive their money.
"Protected income is there to provide peace of mind and works as a paycheck in retirement to cover basic monthly expenses and unforeseen costs," Chatzky argues.
According to the data from the Alliance for Lifetime Income (or ALI), 51% of investors further report uncertainty in whether the traditional 60% stock/40% bond portfolio allocation remains viable, with more than a quarter (28%) saying it is outdated and that other asset classes should be implemented as building blocks for growing and protecting retirement wealth.
Market Woes Boost Annuity Consideration
The ALI data specifically shows that 37% of consumers now find the 4% safe withdrawal rule to be outdated in an era of rapid inflation and rampant market volatility.
At the same time, the survey finds investors on average want 80% of their retirement savings to be invested in "safer investments," while those protected by a pension or an annuity have a significantly more positive outlook on their retirement prospects.
Amid concerns about market volatility and falling retirement investments, Chatzky observes, consumer demand for annuities has grown to an all-time high.
To underscore the momentum, she points to data published by LIMRA showing that consumers enacted $312 billion in total U.S. annuity sales in 2022, marking a 23% increase from 2021 and 18% higher than the prior record of $265 billion in 2008.
"People want protection in today's volatile markets," warns Jean Statler, CEO of the Alliance for Lifetime Income. "Awareness and understanding of annuities are increasing, so it's encouraging to see people reevaluate their retirement savings and add annuities to their plan."
