Americans aged 55-64 overwhelmingly agree that having a guaranteed stream of income during retirement is their top goal, but the vast majority do not know how to convert their retirement savings into a regular retirement "paycheck," focusing instead on simply saving as much as they can, according to a study released by Prudential Retirement finds. These findings are in line with other previous studies that show that Americans prefer guaranteed retirement income over wealth. (Related article: What is an ownership society?)
But such surveys also point out that even if we appreciate the value of saving and investing for retirement, we lack the knowledge to use all the tools available to create wealth for us. While availability of online trading accounts and 401(K) plans has brought more Americans directly into the stock market, vast majority of Americans are not truly prepared for the stock market, and definitely not for its extreme swings.
According to Prudential Retirement's fourth annual Workplace Report on Retirement Planning, despite a nearly unanimous desire for a guaranteed retirement income - as traditional pension plans provide - few older American workers are aware of or plan to use financial options that provide the steady paycheck they say they want. The study confirms that older workers are actively saving for retirement, but few are aware of the income distribution options currently available. In short, this latest Prudential report highlights that near-retirees simply do not know what to do with their retirement nest eggs once they stop working. (Related article: Americans still careless about retirement planning)
Studies like this show that retirement planning, something that is so important for us, is not a priority for most Americans. There is very little information on retirement planning and whatever that is available is still too complex to understand. Do you know the difference between an IRA and a Roth IRA? Have you heard of an ETF? In other words, someone has to make life simple for Americans so that they can use the options that exist today. Unless an IRA becomes as simple to understand and open as a checking account, not many people will embrace it. (Related article: How to get started with retirement planning?)
According to the Prudential survey, for instance, when Americans were asked if they would choose an income annuity to create a retirement paycheck (the only option available to guarantee a stream of income that one cannot outlive), fewer than half (44 percent) had even heard of the income annuity option, and just nine percent said they would use it. (Related article: How to take personal finance decisions?)
"We believe our survey should be a 'wake-up call' to employers, to retirement-plan providers and to the nation as a whole that those nearing retirement need help in managing the payout phase of retirement, especially in light of current discussions on Social Security," John Kim, president, Prudential Retirement says. "Our survey also underscores the need for better education -- targeted specifically to the needs of older workers -- on distribution options and strategies that deliver a predictable, guaranteed income in the increasingly do-it-yourself world of retirement planning. We need to work together to ensure that American workers have access to the tools and resources they need to build a more-secure retirement," Kim added. (Related article: Personal finance tips for retirement)
So what can you do to get ready for retirement?
- Do your own research. It might come across as somewhat intimidating but if you start the research by spending time on personal finance and retirement planning websites, you will start to learn quickly.
- Never miss a chance to attend an educational seminar organized by your employer or 401(K) plan provider or even a brokerage house like Schwab in your area.
- If you can afford to, seek professional help. American Express financial advisors are easy to work with if you have an American Express credit card. Or simply talk to your tax preparer, that is if you do not already do your taxes online.
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