We’ve all heard the term “nest egg” in reference to our retirement savings. But what does it actually mean for your personal situation? Will you deplete it, or will you nurture it to generate income that lasts throughout your retirement?
The conventional wisdom is that retirement investors need to focus on accumulating money—the proverbial nest egg—to spend later on. The challenge with this is that it misses what we really need: an income stream that can provide you with the life you imagine in retirement.
The traditional way of thinking about a nest egg may explain why most Americans are overly optimistic about whether their retirement savings will last. Our 2015 Global Investor Pulse survey has found that they may be in for a surprise: When it comes to retirement income, they’re likely to see a shortfall.
Emerging Cracks in Retirement
Why is focusing on an income stream so critical? The biggest reason is an emerging challenge: our increasingly longer lives. A 65-year-old man today can expect to live to age 84, and a 65-year-old woman could live to 86, according to the Social Security Administration. My colleague Russ Koesterich calls this a “champagne” problem. The extra years are a blessing, but from a planning perspective, your money will need to stretch longer than ever before.
If you’re wondering if you’ll have enough retirement income, you’re not alone. We asked more than 4,000 Americans their thoughts on retirement. Although 74 percent said they expect to be financially secure, and 56 percent are confident they’ll have the income they will need, the data tell a different story. There’s a large gap between where they stand to be and where they hope to be.