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Retirement Planning > Retirement Investing

Survey Points To Changing Income Requirements During Retirement

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More than 8 in 10 boomers plan to continue working during the first 5 years of retirement, and almost three-quarters of boomers expect their post-retirement income requirements to fluctuate.

These are among the findings of a new survey, “Perspectives: Retirement Lifestyles,” released by Sun Life Financial, Wellesley, Mass. The survey authors polled 2,000 respondents age 50 and older (1,000 pre-retirees and 1,000 retirees) who have $250,000-plus in investable assets and work with a financial advisor.

According to the report, only 3 in 10 pre-retirees and retirees expect their income needs to remain static through their retirement years. Among retirees, 67% of those polled expect their income needs to vary from year to year; this compares with 72% among pre-retirees.

“The old rule of thumb was that retirees would live on roughly 70% or 80% of their pre-retirement income and draw down accumulated savings at a constant rate, such as 5% annually,” says Mary Fay, a senior vice president and general manager at SunLife Financial, Wellesley, Mass. “Our survey suggests this rule is no longer true. During their early retirement years, people are a more active and so they spend more.”

Boomers who responded to the survey anticipate engaging in a variety of activities early in retirement. Among those who cite domestic travel and international travel–2 of the most significant post-retirement expenses–85% and 82%, respectively, indicate they intend to pursue these leisure interests within the first 5 years of retirement. By comparison, just 13% of boomers expect to engage in domestic travel during mid-retirement (5 to 10 years into retirement), though 16% anticipate traveling internationally.

Other activities planned for early retirement are similarly high: hobbies (83%); beginning a new career (81%); spending more time with children and grandchildren (78%); starting a business (76%); volunteering (73%); taking classes or getting a degree (72%); buying a second home (61%); relocating to a new place (56%); and assisting charitable organizations (54%).

As the results highlight, not all of the activities have a leisure focus. Pamela Lee, a financial planner at Pursestrings, San Francisco, Calif., observes that retirees’ desire to remain engaged in a working capacity will depend in some measure on their expertise, prior profession and how much fulfillment they derive from work.

“Many of my [retirement age] clients are consultants and professionals who don’t want to leave the workforce because they love what they do so much,” says Lee. “They believe they can continue to provide a useful service to the world, even if in a part-time capacity. For them, money is not the primary issue.”

For many of the SunLife survey respondents, however, money earned from working is expected to be a key source of retirement income. More than 85% of boomers polled expect to continue to work during the first 5 years of retirement, as compared to 10% and 3%, respectively, in the mid-retirement and late retirement years.

Other primary sources of income that boomer respondents anticipate tapping during the early years of retirement include Social Security (70%), an employer pension or retirement plan (65%), rental/investment income (60%) and assets from the sale of a business (58%). Additional sources of income will be used nearly as much–if not more–in the mid-retirement years as during the early years.

For example, 42% of respondents flag annuities as a source of funding in mid-retirement, as compared to 45% in early retirement. Likewise, cash savings and other non-retirement investments (37%), inheritances (38%) and other tax-deferred retirement accounts (47%) are expected to remain sources of income during the mid-retirement years. These figures compare with 45%, 44%, and 42%, respectively, during the early years.

Only 2 other sources of income–money from the sale of a primary residence and financial support from children or relatives–figure prominently in late retirement. More than one-third (35%) and two-thirds (67%) of boomer respondents, respectively, identify these as sources of income.

Because respondents expect that cash flow requirements will fluctuate in retirement, particularly during the high-spending early years, Fay counsels that boomers invest in retirement planning products that offer growth potential and are sufficiently flexible to meet varying income needs.

“Boomers will need to be able to withdraw more money when they need it, less when they don’t, and save funds for future use,” says Fay. “Flexibility is about that ability to start, stop and store.”

She adds, however, that boomers continue to invest heavily in fixed-return products that are at odds with changing income needs. On average, respondents are placing 16% in bank accounts and CDs, 12% in money market mutual funds, and 3% in individual bonds.

The report adds that, as eager as pre-retired boomers are to lead an active retirement lifestyle, only 38% feel ready to fund that lifestyle. This compares with 64% of boomers who are retired.


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