Financial advice often focuses on boosting personal savings rates and maximizing return on investment during a worker’s accumulation years. Equally important, however, is the decumulation process, when people spend those savings in the form of income.
The goal is to optimize that income – allowing for smooth consumption over time and, importantly, ensuring the money doesn’t run out. But the question of how to do that isn’t easy to answer. This has become even more challenging as Americans are living longer, yet the average retirement age is largely unchanged.1
That’s why BlackRock worked with the Bipartisan Policy Center (BPC) to lift the veil on how individuals can optimize retirement income – and the role policymakers have to play in advancing financial security.
Leveraging BlackRock’s proprietary lifecycle model, our analysis demonstrates how taking a holistic approach to retirement income benefits savers. In particular, a few steps—adding guaranteed income, adjusting asset allocation over time, and delaying Social Security claims—can potentially generate more retirement income and decrease risk:
- Adding guaranteed lifetime income combined with a more aggressive asset allocation generates 29% more annual spending ability from one’s retirement savings (excluding Social Security) and reduces downside risk by 33%.2
- On top of that, delaying retirement and claiming Social Security benefits from 65 to 67 boosts total annual spending by another 16% and reduces downside risk by an additional 15%.
- The increased spending generated by these strategies extends well beyond the average lifespan, providing a significantly higher spending floor into a retiree’s 90s and beyond.
Optimizing retirement income requires taking a holistic view. Rather than considering retirement assets, home equity, Social Security benefits, and other savings and assets separately, savers and retirees need help developing strategies that incorporate these as dynamic components of a single portfolio.
Not all Americans, however, have access to the same opportunities and tools. Policymakers have an important role to play by collaborating with the private sector to advance broad and equitable financial security. Key to these efforts is the need to provide greater education and tools to support individuals through the accumulation and decumulation phases of retirement.
Effectively optimizing retirement income requires addressing the problem from all angles, with a particular focus on helping those Americans who lack access to traditional financial planning advice and tools. The retirement ecosystem—recordkeepers, plan sponsors, asset managers, insurers, and more—has a responsibility to work with policymakers to develop creative solutions to modern problems.
1 Alliance for Lifetime Income. “Peak 65,” accessed September 2022. Available at: https://www.protectedincome.org/2024-surge-of-retirement-age-americans-peak-65/. Emily Brandon. “What Is the Average Retirement Age?” U.S. News & World Report, July 26, 2022. Available at: https://money.usnews.com/money/retirement/aging/articles/what-is-the-average-retirement-age.
2 When compared to a standard retirement portfolio of 60% fixed income and 40% equities. There are many ways to measure downside risk; for simplicity, this analysis uses the worst 5% of spending outcomes (i.e., the saver has a 95% chance of spending at least this much over the first 15 years) as a benchmark. We use undiscounted spending in real dollars.
This material is provided for educational purposes only and should not be construed as research. The information presented is not a complete analysis of the global retirement landscape. The opinions expressed herein are subject to change at any time due to changes in the market, the economic or regulatory environment, or for other reasons.
The material does not constitute investment, legal, tax, or other advice and is not to be relied on in making an investment or other decisions.
The opinions expressed may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and non-proprietary sources deemed by BlackRock, Inc. and/or its subsidiaries (together, “BlackRock”) to be reliable. No representation is made that this information is accurate or complete. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader.
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