Welcome to today’s Cardinal lesson, where we’re diving into the concept of creating a guaranteed income for life—a bit like your reliable Social Security check—but with a twist: it’s also a license to spend. Today’s discussion is inspired by a recent research paper by David Blanchett and Michael Finke that resonated deeply with us due to its alignment with our day-to-day experiences in financial planning.
The Challenge of Transitioning from Saving to Spending
Many of our clients have been exceptional savers, diligently setting aside funds for retirement. However, as they approach retirement age, they often face a psychological barrier when it comes to actually spending those savings. It’s ingrained in them to accumulate wealth, not to draw it down for living expenses. This reluctance can stem from fears of outliving their savings or uncertainties about future expenses.
Annuities: A Psychological Shift Toward Spending
Blanchett and Finke’s research highlights a compelling strategy: shifting a portion of retirement assets into income annuities. Unlike other investments, annuities provide a steady stream of income guaranteed for life, offering retirees a psychological “license to spend.” This predictable income can alleviate fears of financial depletion and empower retirees to enjoy their savings.
Addressing Common Concerns
Blanchett and Finke’s research identifies several reasons why retirees hesitate to spend their savings:
Blanchett and Finke’s research identifies several reasons why retirees hesitate to spend their savings:
- Legacy Concerns: Many wish to leave an inheritance for loved ones.
- Healthcare and Longevity: Fear of medical expenses or outliving their savings.
- Market Volatility: Averse to seeing their balances decrease due to market fluctuations.
Annuities mitigate these concerns by providing a stable income unaffected by market downturns and guaranteeing lifetime payments, thereby offering peace of mind and financial security.
Comprehensive Financial Planning Approach
At Cardinal Advisors, we integrate income annuities into comprehensive financial plans tailored to each client’s goals:
- Strategic Asset Allocation: Balancing annuity income with other investments to optimize financial security.
- Estate Planning: Ensuring annuities fit into broader estate planning strategies.
- Tax Efficiency: Structuring annuity withdrawals to minimize tax implications.
Conclusion
The shift from saving to spending in retirement is a significant psychological transition for many retirees. Income annuities offer a structured approach to turn accumulated savings into a reliable income stream, providing the freedom to enjoy retirement without financial worries.
If you resonate with these insights and are considering how to make your retirement savings work for you, we encourage you to explore further or reach out to us for personalized guidance. Your retirement should be a time of enjoyment and fulfillment, and income annuities can help make that vision a reality.
Thank you for joining us on this journey toward financial security and peace of mind in retirement.
