With worries about outliving retirement savings on the rise, Merrill turns its attention to income-focused solutions (2024)

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• Americans are increasingly worried they'll deplete their retirement savings too quickly.
• Income-focused plans encourage retirees to be confident when spending with a strategic budget and reliable source of income.
• Bank of America offers new income-focused portfolios through Merrill Edge accounts.

You've diligently saved for decades, dreaming of a carefree retirement. Now you're faced with a new challenge: how to spend it. The freedom to travel the world or spend on exuberant hobbies is tempting. But what if your nest egg runs dry?

The transition from saving to spending warrants concern. Bank of America's 2023 workplace benefits reportfinds that 30% of employees are concerned about the switch, with 67% believing that the cost of living is outpacing their salary growth (a 9% increase from February 2022).

"For people already in retirement, or nearing it, it's a stressful situation," said Emily Millsap, a CFP, manager and financial planner at Avantax Wealth Management, "But having a financial plan in place and being able to navigate what retirement will look like in the future can alleviate that anxiety."

The US faces a potential $1.3 trillion burden on federal and state public assistance programs over the next few decades, according to Pew Research. But Americans are also worried they'll outlive their retirement savings. Income-focused retirement planning offers a potential solution. Merrill is the latest to turn its attention there.

Check out Business Insider's guide to the best retirement plans >>

Merrill's income-focused retirement portfolios

Merrill, Bank of America's investment and wealth management division, has introduced new income-focused retirement portfolios to diminish retirees' anxieties around spending. They're designed to deliver predictable income for retirees over a 25-year period. You can set up monthly withdrawal amounts based on your evolving financial situation, risk tolerance, and long-term goals.

"There's a prevailing fear that you may outlive your savings, so people try to measure how much money they'll need to maintain their lifestyle," said Matt Gellene, head of consumer investments and employee banking & investments at Bank of America. "Our retirement income portfolios create a way to manage retirement income, create a steady income stream, and have a realistic conversation based on savings and expectations."

The portfolios contain a diverse mix of low-risk bonds and equity to encourage growth and hedge against inflation. Investment strategies include "stable income" and "income and growth." Recurring distributions can be made to a Bank of America checking account or outside bank/investment account.

Another benefit is that early withdrawals have no restrictions or penalties. In an emergency, youcould take out as much money as needed to cover medical bills, home repairs, or other unexpected expenses.

"We have to walk clients through retirement expectations realistically and have them understand where they are in their journey," said Gellene. "By having those conversations, people become much more comfortable and can start reasonably crafting a plan."

Merrill Edge Guided Investing and Merrill Guided Investing with Advisor account holders get access to these portfolios for no additional fees. But you must have at least $50,000 in your eligible Merill Guide Investing account to access.

What is an income-focused retirement planning?

Income-focused retirement strategies help future and current retirees transition from saving to spending. Instead of blindly budgeting, you get a predictable monthly income in an amount you choose. Similar to an annuity contract, income-focused retirement plans promote growth through low-risk investments.

Unlike an annuity, you're not signing a contract with an insurance company but rather opt-in to an investment strategy aimed at increasing retirees' confidence in spending without jeopardizing your financial wellbeing down the line.

Benefits of an income-focused retirement plan

Here's how an income-focused retirement helps retirees budget:

Prevents overspending

Retirement spending habits vary from person to person, but housing, healthcare, and pleasure activities tend to be the highest expenses. People fear they may spend too much too quickly and run out of money sooner rather than later. Yet, being overly conservative sacrifices some of the enjoyment that retirement can bring.

Income-focused retirement plans function like a paycheck, delivering consistent monthly income. You'll know how much money is coming in so you can create a more realistic and sustainable budget. Unlike blindly withdrawing cash, you'll have a set amount you can confidently spend, easing the anxiety about potentially making poor spending choices.

Reduces reliance on Social Security

Social Security is an essential source of income for millions of retirees in the US. However, fewer workers contribute to the system, creating an imbalance that threatens to run the program dry. Millennials, in particular, are expected to collect smaller portions of Social Security than previous generations.

"Retirement has shifted drastically since Social Security first began in 1935," said Millsap. "Life expectancy is much longer, and people now need 15 to 25 years of savings to live off of. Then, you layer in rising housing and healthcare costs. It's hard to fit it all in while working, trying to buy a home, raise a family, and take a vacation every now and again."

Reliable income from your retirement investment portfolioreduces your dependence on Social Security. You can also strategically allocate your Social Security benefits toward specific goals or as an emergency fund.

Promote growth and reduce risk

Some income-focused portfolios incorporate assets with growing capabilities to hedge against inflation and maintain their purchasing power over time. Moreover, retirees can generate regular investment income through assets such as dividend-paying stocks and bonds for improved financial security and peace of mind.

What to watch out for

While income-focused retirement plans and portfolios are a valued tool for workers, further education and professional guidance are critical for navigating the retirement landscape. Nearly half of all US households won't be able to maintain their current lifestyle during retirement, with low-income households at especially high risk, reports the Center for Retirement Research at Boston College.

"Money truly is the last taboo," said Millsap. "Thanks to social media, people talk about religion and politics all the time, but there's still this underlying cultural taboo that we're not supposed to talk about money. We're not supposed to ask people how much they make or if they are feeling anxious about retirement. The first way to break through this culture of secrecy and silence around money is to educate."

Every year, more people lose confidence in their ability to adequately save for their futures. The 2023 BofA reports found that financial insecurities are the highest since 2010, with only 42% of employees feeling confident in their financial situation. Employee optimism about retirement security dropped from 57% to 42% in just a few months.

"Retirement can be scary to talk about, but it's our job to open up that door and have candid conversations that help people plan," said Gellene.

Similarly, whether you sign up for Merrill's new retirement portfolios or seek out alternative income-focused plans, ensure you can access the money without penalty in an emergency. Life is unpredictable, and an unexpected medical crisis or tragedy may suddenly pop up and nab a decent chunk of your retirement fund.

Alternatives to BofA income-focused portfolios

If you don't want to open an account with Merrill, plenty of other banks and investment platforms offer income-focused retirement planning services. Fidelity, for example, offers a retirement-income plan for flexible spending on its website under its Planning and Guidance Center.

Savant Wealth, an independent wealth management firm, has a library of retirement and pre-retirement resources to help people better equip themselves for their non-working years. Take advantage of Savant's Retirement Guidebook, or talk with a team of financial planning experts.

Annuities may also be worth considering as a means to receive reliable income over time with the potential to accrue value when invested. There are multiple kinds of annuities: fixed-rate or variable. Variable annuities pose a higher risk as they are linked more closely to the market, increasing the potential for greater gains or losses. But be mindful of potentially high fees and penalties.