Retirees View Retirement Accounts as Last Resort Income Source

January 14, 2011 ( - New research from Hearts & Wallets, LLC finds retirees struggle to understand and take retirement income from multiple sources – especially money in employer-sponsored plans.

Most focus group participants view employer-sponsored plans as “God-forbid” income sources of the last resort, according to a press release. “Older investors feel like if they haven’t paid taxes on this income source, then it isn’t theirs yet,” said Laura Varas, a Hearts & Wallets principal, in the announcement. “And, they believe it won’t be theirs until Uncle Sam is paid. They avoid touching this income at all costs. That behavior has profound implications for the retirement planning industry.”  

The research found that many Americans may not have thought about how they will or should take retirement income from different accounts. In nine focus groups across the country in late 2010, few participants could comment on what counts as income. Very few participants had any idea of how to take income across different accounts despite a deep desire to understand.  

“Education about income sources is critical for Pre- and Post-Retirees. Older investors aren’t sure if spending from taxable accounts – with incurring any ‘income’ on their tax return, counts as income – nor do they understand how to count taking and reporting minimum required distributions without spending them,” said Varas.  

The press release said Hearts & Wallets encourages firms to develop the concept of a portfolio of retirement income sources, which can be strengthened with a tax strategy.