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4 Ways to Help Prevent Outliving Your Retirement Savings


How do you make sure you don’t outlive your savings in retirement?

That, of course, is the $64,000 question. A report issued last week by the Government Accountability Office doesn’t provide a clear answer, but it does offer a look at what the experts are recommending, and how retirees make do.

The Senate Special Committee on Aging asked the GAO to review three things: Strategies that experts recommend for ensuring income throughout retirement, choices retirees have made for managing their pension and assets to generate income, and policy options available to ensure retirement income.

So what do the experts suggest? They typically recommended that retirees systematically draw down their savings and convert a portion of their savings to an income annuity to cover necessary expenses. If you’re lucky enough to have the option of getting annuity payments from a traditional pension plan, they generally suggest opting for that over a lump-sum withdrawal. The experts also recommended delaying Social Security retirement benefits until reaching at least full-retirement age, and in some cases, continuing to work and save, if possible. (For our take on annuities for retirement, SmartMoney took a look at the top 20 sellers of fixed annuities last year. Our sister publication, Barron’s, rang in just last month.)

The GAO offered this example: For two households with $350,000 to $375,000 in savings, the experts recommended buying annuities with part of the savings, drawing down the rest at an annual rate, such as 4% of the initial balance, using lifetime income from a defined-benefit pension plan, if available, and delaying Social Security. (Try our new retirement calculator to see how much you will need to save for retirement.)

It also points out that there’s no single blueprint that everyone can follow, since everyone’s expenses, income level, health and risk tolerance are different.

So, do people actually follow that advice? For the most part, no. Most retirees rely primarily on Social Security – and many take it before their full retirement age, the report says. And only 6% of those with a defined-contribution plan, such as a 401(k), chose or bought an annuity when they retired. The good news: Most retirees who left jobs with a defined-benefit pension took lifetime benefits.

But with fewer and fewer people having traditional pension benefits available, a bunch of policy proposals point to the need for education about ways to get the most out of retirement savings. Although some groups are pushing to make annuities available in defined-contribution plans, which might make them cheaper than if bought by individuals, some employers who sponsor the plans worry that their choice of annuity provider could make them vulnerable to lawsuits if there are problems.


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About Encore

  • Encore examines the changing nature of retirement, from new rules and guidelines for financial security to the shifting identities and priorities of today’s retirees. The blog also explores news that affects retirement, from the Wall Street Journal Digital Network and around the web. Lead bloggers are reporter Catey Hill and senior editor Jeremy Olshan. Other contributors include The Wall Street Journal’s retirement columnists Glenn Ruffenach and Anne Tergesen; the Director for the Center for Retirement Research at Boston College, Alicia Munnell; and the Director of Research for Pinnacle Advisory Group, Michael Kitces, CFP.