Retirement income can be a daunting question for anyone, especially when they begin to think about retiring. In a study published Thursday by Fidelity Investments, researchers found that 38% of current retirees to not have enough monthly income to cover their bills.
The study also discovered that Americans who are currently working can expect a 28% income drop when they retire. This leaves a huge gap, made wider by additional false illusions.
Kathleen A. Murphy, president of Personal Investing at Fidelity stated that:
“While there is evidence that Americans are saving more for retirement, our analysis finds that they need to take additional steps to prepare for the future and take better control of their personal economy. The study underscores the importance of early engagement in the retirement planning process and the potential impact these five actionable steps can have in helping address the retirement income gap that many Americans are facing today.”
The five steps that Fidelity Investments recommends to boost retirement income are:
1. Adjusting Asset Allocation: 21% of people surveyed have investments that are too conservative, and have limited exposure to the stock market. This means that investors have not appropriately allocated their assets, causing a long-term loss in their earnings potential.
2. Increasing Savings: Participants in the study indicated that they saved an average of $3,500 in 2011. Most of these people are not benefiting from the deferred savings potential of their work or individual retirement accounts. This is especially important for the younger generation, as they have a longer timeframe and, therefore, more potential to let their money grow.
3. Adjusting Retirement Date: The average U.S. person plans to retire at age 65, but delaying this date by just a few years, or even continuing to work part time, instead of retiring fully, can help preserve already saved assets, so that they have a better chance of lasting.
4. Annuitizing Retirement Assets: Currently, less than 17 percent of retirees are using an annuity to create a guaranteed income stream for life, which can cover essential expenses. This can be an incredibly important tool to help savings last through retirement, especially if the retiree lives past his or her mid-eighties.
5. Tapping into Home Equity: 72 percent of those surveyed own a home, and 32 percent of those have no mortgage. The survey suggests that through downsizing and expense reduction, their home equity could also be used to generate retirement income.
check out the video below to see the five key risks to retirement income: