IRIC also says longevity and its impact on retirement savings are creating workplace challenges for employers as well as policy issues for the government as many workers will delay retirement in order to accumulate sufficient retirement savings. The issue brief notes that today’s workers need to understand that they should expect to live a long time after they retire, and while no one knows the answer to how long will they live during retirement, the issue brief provides an in-depth analysis of life expectancies in retirement with tables and examples.
IRIC points out that retirees, on one hand, can use their 401(k) account balance to purchase an annuity. While purchasing an annuity provides a worker with certainty and addresses the longevity factor, it also leaves the retiree facing a potential diminished lifestyle in the event of inflation.
On the other hand, retirees can hold their retirement assets in an IRA, invest funds appropriately, and use a withdrawal rate intended to sustain money for lifetime. This option also presents challenges for retirees, if, for example, they live longer, run out of funds and end up with a less than desired living standard toward the end of their life.
“People are living longer. And while most of us consider this a good thing, it also makes it much more difficult for workers to save enough money to generate sufficient income in retirement,” said Fred Reish, an IRIC member and a partner at Drinker Biddle & Reath LLP, who co-authored the issue brief, in a press release. “Plan sponsors and participants need to better understand longevity and the impact on retirement savings. We believe that one likely outcome is that many workers will retire at later ages, which will have implications for employers and also policy makers. We also believe that now is the time for the insurance and investment communities to create additional retirement income products for 401(k) participants and retirees that guarantee, or at least virtually assure, that income will last for a lifetime.”To obtain a copy of the issue brief, “The Problem with Living Too Long,” visit http://iricouncil.org/thought.