From EBRI's CEO: What's on Retirees' Minds

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We talked with Lori Lucas, president and CEO of the Employee Benefit Research Institute, about her group’s study, Retirees in Profile: Evaluating Five Distinct Lifestyles in Retirement.

Did your research turn up any surprises? We were pleasantly surprised by how many people were comfortable in retirement, including those who said they were just getting by and wished they had saved more. Also, most retirees are wary of spending down their nest egg, but not just because they’re afraid of running out of money. They’re more concerned about running short in case of an unexpected expense.

How can retirees feel more at ease about making the transition from “money in” to “money out”? For one thing, we found that people feel more comfortable spending from steady sources of income rather than tapping their nest egg. So if you don’t receive something like a traditional pension, you can create a regular “spending paycheck” for yourself by figuring out how much you need each month and having that amount automatically transferred from your savings to your checking account.

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Anything else? There’s also a behavioral element. “Sticker shock” is common among new retirees when they first face potential expenses in retirement. But think about how your retirement is going to play out over time. As you go through the phases of retirement, you’re likely to be spending more time with family and friends, which is not as ambitious or expensive. Day one is going to look a lot different than five, 10 or 15 years in.

With traditional pensions becoming less common, are there other ways to create a steady stream of income? Employers can help their workers translate their pool of defined-contribution money into a pension-like experience. For example, they could introduce target-date funds with a decumulation glide path that lets retirees spend down their assets, or stable-value funds, or competitively priced, low-commission annuities. One challenge is overcoming the psychological barrier and helping people feel comfortable about committing to an annuity. This may be the largest amount of money they have ever seen at one time, and they feel disappointed by how much they actually get in payments.

What are your concerns about those retirees who say they are struggling financially? They are more likely to have unmanageable debt, which appears to be a key contributor to their anxiety, lack of satisfaction and low standard of living. They’re in a very tough position because they can’t adjust their spending. They might have been expected to delay their retirement, but it’s possible they were forced to retire because of illness or some other factor. In contrast, those retirees who say they are just getting by are more likely to own their own home and have no debt, which is a source of security and happiness. It’s important to start early to have a plan to pay off debt.

How can employers help? They should consider workplace-based debt-management programs for both retirees and pre-retirees. In addition to investments that provide a steady income stream, they could also offer retirees access to financial advice. The traditional role of an adviser is not only to give guidance on investments but also to reinforce retirees’ plans, help them understand whether they are on track, and address issues such as long-term-care needs. There is an important element of hand-holding.

Janet Bodnar is editor-at-large of Kiplinger's Personal Finance, a position she assumed after retiring as editor of the magazine after eight years at the helm. She is a nationally recognized expert on the subjects of women and money, children's and family finances, and financial literacy. She is the author of two books, Money Smart Women and Raising Money Smart Kids. As editor-at-large, she writes two popular columns for Kiplinger, "Money Smart Women" and "Living in Retirement." Bodnar is a graduate of St. Bonaventure University and is a member of its Board of Trustees. She received her master's degree from Columbia University, where she was also a Knight-Bagehot Fellow in Business and Economics Journalism.