Making Your Money Last

Rethinking Retirement Income Strategies

When interest rates are this low, it might be time to revisit some of the old rules of thumbs about reducing the risk of outliving your money.

Our annual guide to making your nest egg last as long as you do is even more timely this year because yields from the safest place to keep your savings—the bank—are at rock-bottom. The average yield on one-year CDs is just 0.32%, according to Bankrate.com. Five-year CDs aren’t much better, at just 0.49%, on average.

If you’ve saved diligently, you can still convert your savings into a reliable retirement paycheck, writes senior editor Sandy Block in our cover story. But to reduce the risk of outliving your money, you may need to revisit some of the old rules of thumb. For example, with cash and fixed-income investments paying meager returns, retirees may have to boost their stake in stocks, forgoing the traditional mix of 60% stocks and 40% bonds and cash.

Relying on stocks for income can be scary for retirees, especially when volatility is running high. You can reduce the risk of investing in the stock market—and your anxiety—if you make sure you have enough cash flow to cover the basics for a couple of years. That way, when stocks fall, you can put withdrawals on pause until prices recover.

One way to supplement your guaranteed income—typically anchored by Social Security and pension benefits—is with an annuity. Annuities come in many flavors. In our cover story, we focus on the single-premium immediate annuity—in  exchange for a lump sum, an insurance company will provide you with a monthly payment for a specified number of years or the rest of your life. Today’s low interest rates reduce what you earn from an annuity, and that’s one of the reasons most planners advise their clients to cap their annuity investment at 25% to 30% of assets. Sandy covers a number of other strategies to make the most of annuities.

Cautious optimism. To check the pulse of Americans putting their own withdrawal plans in place, we asked a national sampling of respondents age 55 to 70—people both approaching retirement and fully retired—how confident they are that they’ll have enough money to last for their entire retirement. When we conducted the poll in June, the pandemic-sparked bear market was top of mind, and nearly two-thirds of respondents reported a decrease in their retirement investments.

Overall, they are optimistic, with a majority expressing confidence that they will be able to create a secure income stream in retirement. But there are also telling signs of worry: Half of respondents say they are less confident about living comfortably in retirement than they were before the pandemic. Women, people in their fifties and, not surprisingly, those with lower household net worth are the most pessimistic.

Kiplinger commissioned the poll in part­nership with the Alliance for Lifetime Income. The Alliance, whose members consist of prominent insurers and financial firms, focuses on educating people about how protected income from annuities can make them more confident about living a secure retirement.

The economic uncertainty and market volatility created by the pandemic have led many preretirees to rethink their retirement plans. “We’re seeing a great retirement reset underway, in which Americans are more concerned than ever about having enough income to cover expenses in retirement,” says Jean Statler, CEO of the Alliance. People are looking for ways to shield their retirement plans, she adds, which protected income from annuities or pensions can provide.

A surprising number of respondents in our poll still receive, or will receive, a pension, although the average amount is a modest $2,500 per month. Even so, the majority say they are looking for more guaranteed income. And nearly half have either invested in an annuity or would be willing to in the future. (See more highlights from the poll.)

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