Real Retirement, Real Answers
July 31, 2013 | Topics: Retirement
- Understanding the income that can be generated by a lump sum savings is one of the most difficult challenges faced by individuals in the years leading up to retirement.
- BlackRock's CoRI Retirement Indexes use real world, real time data, including interest rates, life expectancy, and risk and inflation factors to estimate the cost of future retirement income beginning at age 65.
- The CoRI Retirement Indexes capture these estimates in an easy to understand format that empowers individuals to quickly translate between their savings and future income levels
Retirement Arithmetic Has Changed
The basic building block of retirement used to be the cash flow provided by monthly checks from a defined benefit pension or Social Security. Today, it's the savings balance in a defined contribution or IRA account. Unfortunately, most people do not know how to estimate future cash flows from their lump sum savings. This can lead to critical — and potentially painful — retirement mistakes.
Understanding Retirement on Your Terms
The idea behind BlackRock's CoRI Retirement Indexes (CoRI Indexes) is simple and powerful. Using real world, real time data, each CoRI Index estimates the cost of one dollar of retirement income beginning at age 65. For example, a CoRI Index level of $13.54 means that a U.S. dollar of life contingent income beginning at age 65 is projected to cost $13.54.
Initially, the CoRI Indexes will be a series of ten indexes, one each for people from age 55 to age 64. An individual can find the appropriate CoRI Index level to quickly translate their retirement savings and annual income levels.
3 Ways Individuals Can Use CoRI Indexes:
1. To Get Your Retirement Bearing
The CoRI Index lets individuals translate between a lump sum and projected lifetime income quickly and easily. For example, a CoRI Index level of $17.48 applied to a 401(k) balance of $500,000 would produce a figure of $28,604 in annual retirement income.
CoRI can also help identify the savings level needed to produce a desired income. For example, using the same CoRI Index level of $17.48, an individual who wants $35,000 in annual income would need $611,800, in savings.
2. As a Benchmark
CoRI Index levels change daily as the factors involved in their calculation change, so it can be used as a personal benchmark of progress toward a retirement income goal.
3. As a Portfolio Planner
By establishing an income baseline, the CoRI Indexes can help clarify the answer to the question, "Have I saved enough?" The CoRI Indexes can also help you have an intelligent, actionable conversation about your portfolio based on your individual situation.
CoRI Index levels allow the individual to not only measure the change in value of their assets, but measure the assets relative to the cost of income, which will also change periodically.
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Putting a significant portion of your portfolio into cash may seem like a good idea when times are uncertain and volatile. But there is a cost: Holding cash is a sure way to lose buying power in the long run.
Living longer is a blessing, but it’s an expensive one. More years in retirement means your money needs to last longer and stretch. The old ways of investing won’t get you to where you need to be. It’s time for a new strategy.
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"So what do I do with my money?" Start saving for retirement today by paying your future self first, make it easy by making setting up features in your retirement savings plans that make it automatic.
This information should not be relied upon as investment advice, research, or a recommendation by BlackRock regarding (i) the use or suitability of the indexes or (ii) any security in particular. Investors should consult their financial advisor to evaluate their investment needs.
The CoRI Retirement indexes and tool do not guarantee future income or protect against loss of principal. There can be no assurance that an investment strategy based on the CoRI Retirement Indexes or CoRI tool will be successful. Indexes are unmanaged and one cannot invest directly in an index.
Investing involves risk, including possible loss of principal.
The CoRI Retirement Indexes, allocations and data are subject to change. Data shown is for informational purposes only and does not represent an actual account. Actual investment outcomes may vary. Although the CoRI tool provides an estimate of the amount of money you need today for every dollar of annual income you want in retirement, this estimate is not a guarantee. A number of factors may contribute to variations in retirement income.
Prepared by BlackRock Investments, LLC, member FINRA. The CoRI Retirement Indexes are calculated by BlackRock Index Services, LLC. BlackRock Investments, LLC and BlackRock Index Services, LLC are subsidiaries of BlackRock, Inc.
All rights reserved. BLACKROCK, CoRI, and the CoRI logo are registered and unregistered trademarks of BlackRock, Inc. or its subsidiaries. All other marks are the property of their respective owners.