Feb. 27: Stateside, southern neighbours worry about running out of money in retirement; viability of government benefits

February 27, 2025

Research from the Alliance for Lifetime Income (ALI) in the U.S. finds that U.S. retirees are worried about money – how much they have, and how much things cost.

“Nearly half of America’s retirees (46 per cent) say spending their savings creates anxiety and is having an emotional toll on them and nearly a third (32 per cent) are spending money faster than they expected,” states a release from the Alliance about their 2024 Protected Retirement Income and Planning (PRIP) study.

The more than 2,500 respondents cited inflation/cost of living as the top concern (82 per cent) and healthcare costs (70 per cent) in second place, the release notes.

It’s the “drawing down” phase of retirement, or decumulation, that is seen as a “major contributing factor” to the anxiety, the release notes. Less than a third of respondents had any kind of plan in place for drawing down their savings as retirement income, the release adds.

Save with SPP reached out to the Alliance by email to ask a few questions, kindly answered by ALI’s Research Fellow David Blanchett.

Q: We were interested in the concerns about living on drawdowns from a lump sum in retirement. It sounds like some people are beginning to realize that annuities are a way to avoid decumulation risk (i.e., running out of money). Are annuities getting more consideration these days?

A: I think there is definitely growing interest in annuities from a variety of retirement stakeholders in the US, these include not only retirees, but also financial advisors, defined contribution plan sponsors, etc.  There is a growing realization that you can’t solve longevity risk with a portfolio and that a product/strategy that provides lifetime income is the best way to do this.  Note, one way to do this is through delayed claiming of Social Security benefits (which I see is noted in your next question), so there’s both a public (delayed claiming) and private (buy an annuity) ways a household can address this issue.

Q: We were interested to read that some U.S. retirees are taking Social Security benefits earlier than planned due to “fears.” Fear that Social Security benefits will be cut? Or that the program will run short on funding? Or both? Just wondering what the fears are about.

A: Yes, the Social Security trust fund is projected to be depleted in about a decade.  At that point if there’s no additional legislation benefits would be cut by about a quarter.  I think it’s unlikely benefits would actually get cut (because this would really anger older Americans receiving benefits, who tend to vote!), but the uncertainty around future benefits I think is causing concern among many older Americans and I’d like to see this get addressed sooner versus later.

Q: Final question — what was your biggest take-away from this research?

A: With respect to the License to Spend research, just the impact the way a household structures its wealth can have on savings.  I’ve spent over a decade focused on the economic benefits of annuitization, but I think it’s behavioral angle that is probably the most important.  When confronted with uncertainties around future market returns, longevity, etc., it makes sense just not to spend savings… but that’s not the point of retirement (or really saving for retirement).  I think lifetime income just makes it easier for retirees to use their savings to enjoy retirement.

The research shows the need for having a “clear retirement income plan,” the release notes.

“It can be a very emotional thing when you wake up one day and realize that paycheck from work won’t be coming, and you’re left with a lump-sum of money that has to last for what could be 20, 30 or more years,” states ALI’s CEO Jean Statler in the media release. “If there’s just one thing you can do to prepare and lower your anxiety, it’s having a clear retirement income plan. And the most important thing in that plan is having enough protected income between Social Security, annuities, or a pension, to cover your basics – those essential expenses you have to pay for like housing and food.”

We thank David Blanchett and ALI for taking the time to field our questions.

Members of the Saskatchewan Pension Plan can, at retirement, choose from a number of SPP annuity options to convert some or all of their account balance into a lifetime monthly income stream. By choosing this option, you’ll be guaranteed to receive a monthly payment on the first of each month for the rest of your life. It’s an option designed to deliver retirement income security.

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Alliance for Lifetime Income (ALI), David Blanchett

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