This Retirement Strategy Creates Steady Income if You Don’t Have a Pension

The “legs” of the commonly referred to stool of retirement planning were the three traditional income streams: Social Security; pensions and personal savings. In this day and age this analogy may be outdated.

Financial planners and other investment professionals are looking to diversify income beyond the old three-legged stool approach to more effectively meet retiree’s needs. A recent study found that close to two in five U.S. retirees are spending more than they expected, and 49% of pre-retired consumers believe planning for retirement is more difficult for them than it was for their parents. While the typical non-retired U.S. consumer over the age of 40 spends $2,993 a month, the average retiree spends about a third less than that, $2,008 a month. Retirees tend to reduce spending once they realize they are unprepared for how quickly expenses add up.

The average retiree with a pension spends 39% more that those without one, suggesting that predictable income instills greater freedom and confidence in their security. Without pensions, individuals can achieve similar outcomes with annuities. They do no have to make as many sacrifices in spending and are able to enjoy a more fulfilling retirement. Retirement savers, especially those lacking a pension, should look for ways to diversify their income streams and ultimately maintain the lifestyles they worked so hard to achieve.

See Paula Nelson, This Retirement Strategy Creates Steady Income if You Don’t Have a Pension, Barron’s, December 8, 2018.

Special thanks to Joel C. Dobris (Professor of Law, UC Davis School of Law) for bringing this article to my attention.