Everyone who reads this blog and website knows what keeps Americans awake at night as they contemplate their future in retirement. It’s money. To be more specific, it’s the fear of running out of money.
Americans have reason to be concerned. The two traditional pillars of retirement income–company-paid pension plans and Social Security–are either fast becoming extinct or in serious need of life support. And the hit many retirement nest eggs took in recent years due the market downturn has added to the anxiety that there may come a day when there is no check in the mailbox.
Our researchers examined 53 possible 30-year scenarios between 1926 and 2009, and applied varying amounts of SPIA from zero to 40 percent. Using a hypothetical portfolio, adjusted for inflation, we looked at a 65-year old retiree making 4.5 percent withdrawals each year.
In the worst 30-year period, 1969 to 1998, a retiree with $100,000 in assets, but none in SPIA, would have run out of money after 23 years. However, a 10 percent SPIA allocation would have extended the life of the portfolio to 25 years, and a 20 percent SPIA to the full 30 years. Applying 30 percent to 40 percent of assets to SPIA at the beginning of the period would have increased the lifetime of the portfolio well beyond 30 years.