My neighbor in our Detroit-area neighborhood retired 20 years ago on a pension from what he still calls Generous Motors, despite the 2009 bankruptcy that left him and many other retirees with worthless General Motors stock.
He is willing to forgive that issue because GM is still dependably paying his old-fashioned, defined benefit pension, and that puts him far ahead of the curve compared to many of his younger friends who don't have this steady retirement income.
Pension lust -- or at least a desire for guaranteed income without investment risk -- is almost universal among boomers ages 55 to 65, according to Allianz Life. It asked a group of pre-retirees and new retirees which they would prefer -- an investment with a guaranteed 4 percent return or an investment with an 8 percent return that wasn't guaranteed. Eighty-seven percent chose the lower return with a guarantee.
Women were even more nervous than men, with 91 percent choosing security, compared to 82 percent of men. People with household incomes below $50,000 had the greatest yen for predictable income, with 92 percent choosing the lower but dependable return.
"People used to say, 'I'm living off my pension and my 401(k) is gravy,' but it's not gravy anymore," says Deb Repya, vice president, advanced markets for Allianz. "Today, retirees have to have an escrow withdrawal strategy, and the money has to last."
Given this reality, at what point in their retirement planning should savers begin contemplating a withdrawal strategy?
"The sooner you think about a withdrawal strategy, the more flexibility you have," Repya says. "I don't think 10 years in advance of retirement is too early to think about how you are going to transition. And you should definitely be considering it five years before retirement."
Factors that play into your decision include:
- College debt: Your children's or your own.
- Mortgage debt: Have you paid off your home? If you haven't, when will you?
- Your health: "It comes as a surprise to many people what the Medicare premium is. It's a big expense," Repya says.
- Your legacy: Do your children need help now, or will you leave them what you can later?
Mull over those issues and then factor in your best guess about longevity, inflation and future taxation. Having a crystal ball helps.
Some people do OK figuring this out on their own, but Repya believes this isn't a do-it-yourself project. She says you need professional help assessing your assets and liabilities so you know whether you can afford "your needs, your wants and your wishes."