How To Optimize Retirement Income

Financial advice often focuses on boosting personal savings rates and maximizing return on investment during a worker’s accumulation years. Equally important, however, is the decumulation process, when people spend those savings in the form of income.

The goal is to optimize that income – allowing for smooth consumption over time and, importantly, ensuring the money doesn’t run out. But the question of how to do that isn’t easy to answer. This has become even more challenging as Americans are living longer, yet the average retirement age is largely unchanged.1

That’s why BlackRock worked with the Bipartisan Policy Center (BPC) to lift the veil on how individuals can optimize retirement income – and the role policymakers have to play in advancing financial security.

Leveraging BlackRock’s proprietary lifecycle model, our analysis demonstrates how taking a holistic approach to retirement income benefits savers. In particular, a few steps—adding guaranteed income, adjusting asset allocation over time, and delaying Social Security claims—can potentially generate more retirement income and decrease risk:

  • Adding guaranteed lifetime income combined with a more aggressive asset allocation generates 29% more annual spending ability from one’s retirement savings (excluding Social Security) and reduces downside risk by 33%.2
  • On top of that, delaying retirement and claiming Social Security benefits from 65 to 67 boosts total annual spending by another 16% and reduces downside risk by an additional 15%.
  • The increased spending generated by these strategies extends well beyond the average lifespan, providing a significantly higher spending floor into a retiree’s 90s and beyond.