Building the lifelong “paycheck”: What does it take?

  • Most retired baby boomers have a plan for how to pay themselves in retirement.
  • More than half of pre-retiree boomers either haven’t thought about how they will pay themselves in retirement or believe that putting a plan together will be difficult.
  • Pre-retiree boomers expect to receive far less income in retirement from pensions and far more from their 401(k)s than current retirees.

Let’s say you’re one of the tens of millions of people looking forward to retirement. You’re still saving, but the finish line is in sight and you’re looking forward to the day when you can start pursuing your post-work dreams.

However, many pre-retired boomers could face challenges pursuing those retirement dreams. They’ve worked for a long time and many have saved diligently. But, according to the recent Ameriprise Financial Pay Yourself in Retirement study which surveyed boomer adults age 55-75 with at least $100,000 in assets, less than half have set up plans for how to fund their post-work years.

That was one key finding from the study. Perhaps not surprisingly, the survey also found that many of those pre-retirement-age boomers are worried about the future.

But there’s good news: They don’t necessarily have to be worried.

Why are retired boomers so confident?

According to those responding, 92% of retired boomers feel confident their savings will meet their needs all the way through retirement. One reason why: they’ve given careful thought to this next stage of their lives. An overwhelming 85% of them have plans that detail how they will pay themselves in retirement, covering everything from asset allocation to tax strategies, health care coverage, Social Security benefits — even how to budget for expenses.

Risk factors for retirees

The detailed nature of those plans is particularly critical when you consider two major concerns that retirees need to address:

  • Expenses: 26% of retiree boomers report being surprised at how expensive retirement can be, citing health care, food, taxes and travel as the primary culprits.
  • Required Minimum Distributions (RMDs): The RMD rule also emerged as a significant issue in the study. In a nutshell, this federal tax rule requires that individuals begin drawing on specific retirement accounts starting at age 70½. Failure to do so will lead to stiff penalties. While calculating an RMD is not always easy, retirees with plans are more likely to understand how to do it.

Why retired boomers with plans have reasons to feel confident and secure:

  • An eye-opening 87% report that they have as much — or even more — money than expected.
  • Nearly two-thirds (64%) have a strategy for determining how much and when to withdraw from specific accounts.
  • 53% turned to financial advisors to help set up their plans.

“While each person’s path to a comfortable retirement is unique, those who are most confident have a plan that factors in everything from Social Security to health care, market volatility and more,” says Marcy Keckler Ameriprise Vice President, Financial Advice Strategy. “With a plan, and the right financial advisor to provide guidance, you too can feel more confident about retirement.”

Pre-retiree boomers: What’s the plan?

According to the survey results, boomers who have yet to retire are not nearly as self-assured as their retired counterparts. Just over than half (52%) of them have plans for generating income in retirement. And that’s causing worry in their ranks as only 8% of boomers without plans are completely confident they have saved enough to last through retirement.

Why pre-retiree boomers are less confident

  • Far fewer of them will have pensions to augment their savings in retirement. Retired boomers are more likely to have pensions than pre-retirees (71% among the retired vs. 52% among the pre-retired), according to the study. In short, most boomers who have yet to hit retirement age will have to rely only on their savings and Social Security to fund their post-work lives.
  • A majority of them (53%) either haven’t thought about a retirement income plan or believe that constructing one will be difficult.
  • A total of 42% have not identified which investments they plan to draw down first — and 20% haven’t even considered the topic.
  • On average, they’re less likely to know how to calculate their RMDs. And 25% either don’t understand or haven’t heard of the rule.

In a sense, some of these figures are understandable. It’s not uncommon for people to delay serious retirement planning until they’re well into their 50s. And while it’s never too late to plan, the earlier you start, the more confident you’re likely to be about your finances.

Pre-retirees with plans tend to feel better about retirement

  • Nearly 70% of them feel it will be easy to pay themselves in retirement.
  • They’re approximately three times more likely to feel completely confident that they have saved enough to last through retirement.

Starting early can help you feel more confident

Saving and investing money is critical. But so is knowing how to use that money to pay yourself later. “It’s never too late to craft – or update – a retirement plan,” says Keckler. “The important thing is to just get started. And that’s where an advisor can serve as a trusted resource and a powerful ally. The right advisor can help position you for a more confident retirement.”

An Ameriprise financial advisor can work with you an approach that’s customized for your life — and help put you on track to pursuing your retirement dreams.