Here’s an Alternative to the Standard Retirement Spending Rules

A new paper from BlackRock and the Bipartisan Policy Center suggests that there are actions that advisors and investors can take to increase the amount of money available in retirement.


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When it comes to retirement savings in the U.S., things don’t look particularly promising.

Seventy percent of Americans at or near retirement have less than $250,000 in savings, and only 22 percent of Americans surveyed in February felt they had saved enough for retirement.

However, a new paper by BlackRock and the Bipartisan Policy Center, a Washington D.C.-based think tank, suggests that there are actions that advisors and investors can take to increase retirement spending.

Historically, retirement professionals have recommended that retirees only withdraw about 4 percent of the retiree’s total account balance in any given year, in order to maintain the account’s longevity well into retirement. Those who need to take more than 4 percent a year for living expenses risk having little to no retirement savings at the end of their life.

The situation isn’t completely hopeless, but it does require active planning on the part of financial advisors, planning that is focused not just on how to save for retirement but what to do when retirement actually rolls around.

“Financial advice often focuses on boosting personal savings rates and maximizing return on investment during savers’ working lives,” the report states. “But equally important is the ‘decumulation’ phase, when households seek to generate sufficient income in retirement to meet their spending needs.”

“Savers and retirees must treat retirement as a phase of life rather than a destination and develop a retirement income toolkit made up of multiple potential income sources and strategies that will diversify and increase retirement income,” BlackRock wrote. “Ensuring this toolkit remains robust throughout the entire decumulation process requires active planning throughout the accumulation phase and keen attention to critical decisions, including when to retire and claim Social Security benefits.”

BlackRock and the Bipartisan Policy Center found that adding a guaranteed lifetime income combined with a more aggressive asset allocation could increase retirement spending power by 29 percent. This strategy also reduced downside risk by 33 percent when compared to a standard retirement portfolio of 60 percent fixed income and 40 percent equities. According to the report, the modeled guaranteed-income products incorporated actuarial and capital market assumptions but didn’t include fees.

Claiming Social Security later in life also had a large impact on retirement spending. Delaying social security by just two years — from age 65 to 67 — generated an additional 16 percent in annual spending power and reduced downside risk by 15 percent when combined with a guaranteed lifetime income and adjusting asset allocation. Compared to the standard 60-40 portfolio, this combined strategy resulted in a 22 percent higher average amount of spending throughout retirement and a 21 percent decline in downside risk, both of which could be life-changing adjustments for many Americans.

According to the report, increased spending generated by both strategies — adding a guaranteed lifetime income with an aggressive asset allocation and claiming Social Security later in life — extends retirement accounts well beyond the average lifespan in the U.S. and can provide a significantly higher spending floor well into a retiree’s nineties.

“Retirement spending is one of the hardest problems retirees face, so the industry needs to give people affordable, innovative solutions and tools to help them navigate this challenge,” Matt Soifer, head of distribution for BlackRock’s retirement business, said in a statement.

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