86% of Older Savers Worry About Their Retirement – But Not About Their Savings

For decades, the financial industry has focused on that magical seven-figure balance in your 401(k) that supposedly indicates you’re ready to quit the rat race. But new data suggests that retirees are no longer prepared for how much to save. They are worried about how long it will take.

According to a recent BlackRock survey, 86% of respondents now say they want guaranteed income in retirement.

The old goal was to accumulate wealth; The new goal is to reduce income without fear of breaking even at 85. It turns out that watching a $1 million portfolio move in a volatile market doesn’t sound like freedom. It sounds like an accident.

Here’s why the mindset is changing and how you can plan your pension to suit this need.

Fear of running empty-handed

The main driver of this concern is the risk of longevity. Americans are living longer, yet their planning often fails to account for a retirement that can last 30 years or more.

We are notoriously bad at estimating our lifespan. Data suggests that although the average life expectancy hovers around the late 70s or early 80s, if you are a married couple aged 65 today, there is a 50% chance that one of you will live into your 90s.

If your financial plan assumes you will pass away at age 82, but you live to age 94, you have a 12-year income gap. It’s a nightmare that keeps retirees up at night. This is also why the demand for guaranteed income has increased dramatically.

Why the 4% rule might fail

For years, planners suggested the 4% rule. The theory was simple: withdraw 4% of your portfolio each year, adjusted for annual inflation, and you’d be unlikely to run out of money for 30 years.

But this rule assumes a definite sequence of returns. If you retire in a bear market – where stocks drop 20% in your first two years – your portfolio may never recover. You end up selling goods at a loss to pay for groceries, digging a hole you can’t get out of.

This risk of sequence of returns is why relying solely on a stock heavy portfolio is risky. You can’t control the market, and you can’t control how long you live.

Calculate your survival number

Before buying any financial product, you need to know your survival number. This is separate from your overall budget.

Your survival rate is the sum of your negotiable fixed expenses, such as:

• Property taxes
• Utilities (electricity, water, heat)
• Insurance premiums (Medicare, home, auto)
• Basic food costs

Discretionary spending – such as travel, dining out, and gifts – are not counted here.

Once you have this annual figure, subtract your Social Security benefit from it. If your survival number is $50,000 and your Social Security coverage is $30,000, you have a “survival gap” of $20,000.

This is the gap you would like covered by guaranteed income.

How to buy a paycheck

To close that $20,000 gap, you don’t need a hot stock tip. You need what experts call long-term insurance. A more straightforward version of this is the Single Premium Immediate Annuity (SPIA).

Ignore the complicated, high-fee products being pushed by insurance salespeople. SPIA is vanilla. It’s a simple contract: You give the insurance company a lump sum, and they send you a monthly check for life. It works like a pension.

If you are afraid to withdraw your money, SPIA transfers that risk from you to the insurance company. If you stay at 105, they continue to pay. The downside is that you often lose access to that amount, which is why you have to put some portion of your savings into a SPIA – enough to cover that survival gap.

Extending your government check

Another way to protect a guaranteed income is already in your hands: Social Security.

Many people claim benefits at 62, cutting off their monthly paycheck forever. If you can bridge the gap and wait until age 70, your benefit increases by about 8% each year you delay past your full retirement age.

There is no investment product on the safe side of the market that guarantees 8% annual growth. By delaying, you are essentially buying a large inflation-adjusted pension from the government.

Peace of mind is priceless

86% of retirees who complain about guaranteed income are not wrong. They realized that a lump sum is not the same as a continuous payment.

The goal of retirement is not to die rich; it’s life with less worries. By covering your living expenses with guaranteed income streams, you free up your entire portfolio. You can invest that extra money aggressively, donate it, or spend it on a dream vacation, knowing that no matter what the market does, the lights will always be on.

Whether you have $100,000 or $1,000,000 in savings, you may want to consider getting advice from a professional. SmartAsset offers a free service that matches you with a vetted, fiduciary advisor in less than 5 minutes.