One–Third of 'Transition Boomers' Unsure about Their Retirement Income Needs.

It's common to hear people say they're looking forward to retirement, but it's surprising how unprepared many of the people closest to retirement actually are.

Though less than ten years from retirement, one–third of Transition BoomersSM (those ages 55 to 65) say they're unsure of how much money they'll need to cover their basic living expenses.

This was a major finding of the Transition Boomers and Retirement Income Survey* from Allianz Life Insurance Company of North America. Conducted exclusively with more than 1,000 baby boomers ages 55 to 65, the survey also found that one–quarter appear to be uninformed about the effects of inflation and more than 40% may not have a realistic idea of when retirement planning should begin.

Transition Boomers
Transition Boomers unsure about retirement income needs.

"It's alarming that so many boomers on the cusp of retirement are still unclear about the basic factors which determine their ability to fund their lifestyle once they stop working," said Allianz Life President and CEO Walter White.

The 4 C's planning strategy

To help, Allianz Life has developed the 4 C's of Successful Retirement Income Strategies. This planning framework outlines the issues that boomers should consider during the transition phase roughly five to 10 years before retirement:

  • Clarity on your sources of present and future income, and how longevity and other factors could affect your retirement savings.

  • Comfort involves identifying your desired lifestyle for what could be several decades of retirement living.

  • Cost of living evaluates the impact of inflation on your retirement savings.

  • Certainty is about finding solutions that can provide guaranteed lifetime income.

For Transition Boomers, the difference between a more secure future and a more uncertain one may be in the success of their retirement income strategies — which is why having a clear picture of their future needs is so important.

Inflation and income sources

Transition Boomers significantly underestimate the impact inflation and taxes will have in retirement. While healthcare costs ranked as their biggest retirement concern in the survey, much fewer thought keeping up with inflation (10%) or taxes in retirement (6%) were a top concern.

As for sources of income during retirement, the majority of Transition Boomers (94%) said they expect Social Security to play a role in their retirement income. But there was far less consideration of other sources that make up a well–rounded retirement income portfolio such as defined-contribution plans (including 401(k), 403 and 457 plans). These supplementary income sources can be key to supporting a comfortable retirement lifestyle.

The 30% who indicated they expect some retirement income from part–time work may be in for a rude awakening. "Although many boomers say they'll work in retirement, studies show that many may have difficulty doing so due to layoffs, health issues, or the need to care for other family members," said Allianz Life Vice President of Consumer Insights Katie Libbe.

Planning begins too late

Ultimately, the biggest stumbling block for many Transition Boomers remains just beginning the retirement income planning process in a timely manner.

According to the survey, 43% say they will not focus on retirement income strategies until they are less than five years from the start of retirement. An astounding 16% say they'll wait until just a year or even six months before retirement.

Katie Libbe warns that this means many Transition Boomers will probably not start planning far enough ahead to be able to make strategic choices about retirement income. This could significantly affect the lifestyle they can support.

"It's crucial for Transition Boomers to start thinking and talking about retirement income issues as soon as possible. For instance, you're allowed to make 'catch-up' contributions above the traditional IRS guidelines into a 401(k) if you're 50 or older, or into a health savings account if you're at least 55."

"People spend years dreaming about their retirement. You have to spend even longer planning for it."

*The Allianz Life Transition Boomers and Retirement Income Survey (+/- 3% margin of error) was conducted by Ipsos U.S. eNation online from June 6-8, 2012, with 1,095 respondents age 55-65, and was commissioned by Allianz Life Insurance Company of North America.