Navigating Retirement

Busting Three Common Myths about Retirement

New pathways to the ‘process of retirement’

New data from the fourth edition of the Retirement Income Reference Book

When it comes to retirement, there is often a lot of uncertainty. The process of retiring comes with a lot of complex and unique risks that individuals need to consider. With these risks often come misconceptions about planning, preparation and timing.

What are some ways that advisors can dispel some of these myths about retirement and better prepare their clients for their glory years? The fourth edition of the Retirement Income Reference Book highlights ten common myths of pre-retirees and retirees.

We highlight three below:

Myth #1: I’ll die before I am 90

Reality: Retirees, pre-retirees and advisors tend to underestimate longevity risk when planning for retirement. Our data shows that 1 in 4 65-year-old men with average health will live to age 93; a quarter of women the same age with average health will live to 96. Underestimating longevity risk could pose a significant threat to retirees who use systematic withdrawals as there is a possibility of exhausting their financial resources at an older age. Purchasing a product that guarantees lifetime income reduces the risk retirees will outlive their savings or compromise their retirement lifestyle.

Myth #2: I’ll keep working and never retire

Reality: While there are many people who may want to keep working, retirement is not always a choice. LIMRA Secure Retirement data show that over half of retirees retired earlier than they planned. The most common reason was health problems, which are not always predictable; nearly 1 in 5 said this was the reason they retired earlier than planned. Additionally, LIMRA SRI data show that more than 70 percent of non-retirees expect to work in retirement or transition slowly, but just 16 percent of retirees reported they work. Advisors need to prepare clients for the possibility of early retirement and the impact it can have on their savings and potential lifestyle.

Myth #3: Annuities are bad investments

Reality: There are many investors and advisors that may have a negative view about annuities. However, LIMRA SRI data shows that nearly 7 in 10 retirees who own an annuity are more confident their savings and investments will not run out if they live to age 90, compared with 57 percent of retirees who don’t own an annuity. Nearly three-quarters of retiree’s who own an annuity also are confident they can live the retirement lifestyle they want. Advisors can show clients that income annuities can relieve retirees of the anxiety of managing their investments as they get older.

longevity risk could pose a significant threat to retirees who use systematic withdrawals as there is a possibility of exhausting their financial resources at an older age...

There are many opportunities for advisors to help prepare their clients for retirement by demystifying and debunking common myths around retirement. In doing so, advisors can gain the trust of clients and better serve their needs.

Key Findings from the Retirement Income Reference Book

  • There are already 50.5 million retirees in the United States, and that will increase to 72 million by 2035. Nearly half of Americans currently retire between ages 61 and 65.
  • The demand for guaranteed lifetime income is huge: nearly $780 billion. Interest in creating guaranteed income remains high for pre-retirees.
  • The longevity of Americans keeps improving. One out of four 65-year-old men of average health will live to age 93 and 1 out of 4 65-year-old women will live to age 96.
  • In 8 out of 10 cases, couples are likely to have long lives and could maximize Social Security benefits by delaying claims.
  • Just having an advisor or having an annuity is not enough to build retirement confidence. A formal income plan is the best stimulus for and predictor of retiree confidence levels.
  • Women buy the majority of single-life guaranteed lifetime income annuities.
  • Retirees are more confident when they have an annuity.