It is no shocker that research proves we are not very rational about the way we make key decisions on when and how to retire. And a few new, fascinating studies just presented at the annual Retirement Research Consortium meeting in Washington, D.C., prove it.
By “not very rational,” I don’t mean that our choices are nutty. We’re just not doing what economists say we should be doing. The economists typically say retirees should convert their savings into these monthly-income-for-life products — but most people don’t. Another is taking social security too early. Problem is these choices are made psychological as they are financial. “Is a good decision one that gives you the best economic outcome or what makes you the happiest or most comfortable? Hmmm?
One irrational decision made by too many retirees is Taking Social Security Too Early. Fifty percent of Americans start collecting Social Security at 62 or within two months of leaving the labor force; 80 percent or more claim benefits before their full retirement age based on “Hey, it’s my money, I better get it before I die” mentality, even though they could double their Social Security payments by waiting until age 70.
Why Retirees Snub Annuities
After surveying 5,000 Americans age 50 to 75, John Beshears, an assistant professor of the Harvard Business School, and four co-authors discovered that although older Americans like the idea of a steady income stream in retirement, they hated annuities’ lack of flexibility. This is based on a significant lack of understanding. You cannot assure your money last forever and simultaneously expect keep it all liquid to spend.
Also, many baby boomers do not understand they can take their lump sum, create lifetime income and NOT GIVE UP THEIR MONEY. Putting all your money in an annuity can feel scary. The solution is simple, DON’T PUT ALL YOUR MONEY INTO ANNUITIES. More and more retirees are finding out that their need for guaranteed income, as well as flexibility and control can easily be met by an allocation that puts some in annuities and some at risk. Economists think more people should sign up for annuities, as research has proven that retirees with some level of guaranteed income for basics at least, are more satisfied and less stressed.