From the U.S. Government Accountability Office, www.gao.gov Transcript for: Watchdog Report: Retirement Income Challenges & Strategies Audio interview by GAO staff with Charles Jeszeck, Director, Education, Workforce, and Income Security Related GAO Work: GAO-11-400: RETIREMENT INCOME: Ensuring Income throughout Retirement Requires Difficult Choices Released On: July 1, 2011 [ Background Music ] [ Narrator: ] Welcome to GAO's Watchdog Report, your source for news and information from the Government Accountability Office. It's July 1, 2011. As Americans' life expectancies increase, so do their odds for outliving their assets. In 2009, 3.4 million people older than 64 had incomes below the poverty level. A group led by Charlie Jeszeck, Director in GAO's Education Workforce and Income Security Team, recently reviewed the issues surrounding retirement income as well as some potential policy options for addressing them. GAO's Jeremy Cluchey sat down with Charlie to learn more. [ Jeremy Cluchey: ] To what extent is ensuring income throughout retirement a challenge for American retirees today? [Charles Jeszeck : ] Well, it's a very serious challenge. First, with the shift from traditional plans to defined contribution plans, there's greater risk and responsibility placed on the individual worker. In the past the main focus has been on saving. How do workers save more? How can you have enough for retirement? How do you invest it responsibly and so on? This report highlights another very serious challenge of once you've saved, once you've reached retirement, how do you spend that money down? How do you make that money last for retirement? [ Jeremy Cluchey: ] Your team talked to financial experts and you asked for their recommended strategies based on five sample households of differing wealth levels. Can you talk a little bit about what they said? [Charles Jeszeck : ] Well, the response varied by income, family circumstance, and health, but overall there were three things that came through. The first is that people should work as long as they can in order to maximize their Social Security benefit. It's really the cheapest annuity benefit that you can obtain. Second of all was that they really should take some of their savings and annuitize it so that they augment the income stream on a monthly basis throughout the years of retirement. And the third thing is to take the remaining savings and spend it down in a strategic, systematic way so you don't outlive that money. [ Jeremy Cluchey: ] You also looked at how people actually handle retirement income issues. How closely did you find that that matches up with what the experts are recommending? [Charles Jeszeck : ] Well, it didn't match up very well frankly. People did seem to spend their assets down in a strategic, systematic way, at least the evidence that we were able to look at. However, a large number, almost half of all claimants, tended to take their Social Security benefits as soon as they were eligible. And then also very few retirees annuitize any portion of their income. So in some sense of it you could say it was one out of three. [ Jeremy Cluchey: ] What are some of the policy options that are available to Congress and others looking to help address these issues? [Charles Jeszeck : ] Well, the first thing I think the Congress and the administration, and there have been proposals along this line, are ways to encourage people to annuitize more. Very few retirees annuitize any portion of their income, and there really is a need to at least listen to the financial advisors to expand the amount of annuitization that takes place. The second thing is we're able to continue to expand upon the financial literacy of American workers and retirees. There are a lot of key decisions that people have to make both pre- and postretirement, and people really need to be able to understand those decisions and make intelligent choices. And the third thing really is to ultimately—we didn't get too much into this in this report—was to really continue to expand pension coverage, to get more people to save and to participate in their 401K plans during their working lives. [ Jeremy Cluchey: ] And for taxpayers of any age who are thinking about how to prepare for retirement, what's the bottom line of this report? [Charles Jeszeck : ] Well, I think there are three things. First, you have to have a plan: not only how you're going to save, how you're going to invest your money during your working years, but then what are you going to do with it postretirement? The second thing is really to work as long as you can; particularly these days you're going to need that extra income. And the third thing is to save, save, save so you have a pot of money that you can make these decisions with in retirement. [ Background Music ] [ Narrator: ] To learn more, visit GAO's Web site at GAO.gov and be sure to tune in to the next edition of GAO's Watchdog Report for more from the congressional watchdog, the Government Accountability Office.