After nearly two years of COVID-19 in the United States, it’s no surprise that mental health issues are on the rise. In fact, a recent survey found that nine in 10 therapists say the number of clients seeking their services has increased, and one in three have waiting lists longer than three months just for a first appointment. And while there have been several contributors over the past 24 months – such as social isolation, drastic changes in routine, or the loss of a loved one – one perhaps overlooked factor that is fueling this health crisis mental is financial stress.
According to MetLife’s 19th Annual Employee Benefits Trend Study (EBTS), poor financial health is a leading contributor to poor mental health, with 86% of working Americans saying finances are a major source of stress for them now and in the future. This makes sense considering that amidst volatile stock markets, job losses, rising inflation, and more, many Americans are not only struggling in the short term, but are also behind on their long-term financial goals, such as saving for retirement. Today, more than half (58%) of working Americans haven’t started or are behind on their retirement savings and for those who are retired, four in 10 express anxiety about that their money runs out entirely, according to MetLife 2022 Paycheck or Pot of Gold Study℠.
That’s why, as many look to improve their mental health this year, educating yourself about the realities of retirement can be key to reducing financial anxieties and gaining overall peace of mind. As such, here are three of the most common myths about retirement benefits and facts that can help reduce your financial stress:
1. Myth: The best way to distribute your retirement savings is in a lump sum.
Reality: The decision of what to do with your 401(k) money in retirement is important and should not be taken lightly – it will literally affect you for the rest of your life. Taking all the money in a lump sum can be tempting, but there can be significant downsides. Consider that one in three retirees (34%) who took a lump sum from their employer-sponsored defined contribution (DC) plan exhausted their money in an average of five years, on average.
Many people who take lump sums from their retirement plans have exhausted their money too quickly relative to their life expectancy, potentially leaving them to fund a significant portion of their retirement years with no income other than Social Security, the MetLife payroll or the Pot of Gold study. , so it’s important to consider all of your options to determine which one is right for you.
2. Myth: It’s easy to lose control of my money if I don’t receive my retirement savings all at once.
Fact: Contrary to popular belief, solutions like income annuities can give you greater financial control. They can provide you with a guaranteed, regular stream of income in retirement, no matter how long you live. By choosing an income annuity, you’re essentially creating a guaranteed stream of monthly payments, and the predictable cash flow provided by a lifetime income product makes it easy to turn your assets into a stable “retirement check.” This presents a viable alternative to trying to control a large lump sum of money throughout retirement.
Also, annuities don’t have to be an all-or-nothing proposition. By using the partial annuity, you can create a guaranteed layer of income with some of your savings and keep some assets in the plan to keep your savings growing or for unexpected expenses.
3. Myth: My employer only offers one type of distribution option.
Reality: More and more employers are now offering non-flat-rate solutions as distribution options for DC plans. And while some fear that these options are too complex and confusing, they’re actually a lot simpler than you might think. There are no investment decisions to make with income annuities, for example, making them an all-in-one solution for employees looking for simplicity when planning their financial future. By taking advantage of different offers, you can have more confidence, having taken steps to ensure the sustainability of your savings.
In these unpredictable times, thinking about your financial future can be stressful. And while retirement is just one piece of the financial well-being puzzle, understanding which retirement options are right for you and how to take advantage of them can help give you peace of mind knowing that your savings will be protected, even in the face of future uncertainty.
