A New Kind of Retirement Problem
No, it has nothing to do with saving money.
Everyone knows there’s a retirement savings crisis. Who knew there was a retirement spending crisis?
The rules for depositing money and earning interest on various retirement accounts are complicated enough, whether they’re 401(k)s, traditional IRAs, or Roth IRAs. According to a new study, few Americans know the rules for withdrawing their money.
According to a New York Life poll, “77 percent of Americans don’t understand how to safely withdraw from their nest eggs in retirement.” For instance, they have no clue how much of their retirement savings they can spend each year without “running the risk of outliving their assets.”
Almost a third of the nearly 1,000 adults polled said they think they can spend up to 10 percent of their retirement savings each year and not run out of money before they die. The real number is 5 percent.
“There is a tremendous risk lurking in retirement – after years of doing your best to save, there is a risk of mismanaging that nest egg in retirement and running out of money,” says Dylan Huang, New York Life’s head of Retirement Solutions.
“Turning your savings into income for yourself in retirement is not easy. But the first step is knowing that anything above 5 percent is way too high.”
While New York Life researchers used words like “surprising” to describe these results, one financial expert says he would have been shocked if more Americans knew how to withdraw their retirement savings properly.
“It’s a luxury for many working Americans to know much about retirement savings, when they’re drowning in credit card debt,” says Gary Herman, president of Consolidated Credit. “When the interest rates on credit cards are averaging 15 percent a month, and when retirement accounts are averaging 12 percent over the lifetime of the investment, you can understand where their priorities are.”
Herman urges people to pay down their credit cards and then deposit the money they were paying in interest into retirement accounts. How do you do that? Check out Consolidated Credit’s special section called Debt Relief Options for Credit Cards.