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U.S. Master™ Pension Guide, 2009 Edition
Revised for 2009 to include relevant provisions of the Heroes Earnings Assistance Relief Tax (HEART) Act and the Emergency Economic Stabilization Act.
A study conducted by the Society of Actuaries reveals skewed perceptions by pre-retirement age individuals that contribute to inadequate retirement savings. The study was unveiled at the Enrolled Actuaries Meeting in Washington, DC, on April 9, 2008. The survey evaluated a cross-section of Americans on their awareness of potential financial risks in retirement and how the awareness impacts the management of their finances before and during retirement. The panelists included Emily Kessler, managing director, Society of Actuaries, and Stephen McGivney, executive vice president, Aon Consulting.
The majority of retirees and pre-retirees anticipate that their employer-sponsored plan will be an important source of retirement income. They also expect a significant income flow to come from Social Security and from the liquidation of real estate, principally their homes. Kessler remarked that, while most Americans have said they will sell their homes when they retire, the data does not reveal this has happened yet among those now retired. “It will be interesting to see if there will be a shift.” The more interesting question, Kessler added, is “who is going to buy all these homes once they are sold since the baby boomers did not have a lot of children.”
Most individuals expect to experience some level of incapacity during their retirement, McGivney reported. Seventy-two percent of those now retired and 84 percent of pre-retirees believe there will be a time in retirement when they are somewhat less able to do things they used to do and their needs will be somewhat different. Half believe these increasing needs will require more income, he added. To address these needs, those now retired plan to save more money or invest to make assets last longer. Insurance plays only a small role in preparing for this increased need, however, with only 11 percent of retirees and 8 percent of pre-retirees planning to buy long term care insurance.
Expectations are different between retirees as a group and those not yet retired. The majority of retirees (77 percent) retired prior to age 65; however, pre-retirees (66 percent) anticipate retiring on or after age 65. Furthermore, 31 percent of those already retired had retired prior to age 55. Kessler observed that such early retirements could have been due to reductions in the workforce or serious health issues. “Americans [as a whole] do not anticipate having to retire because of health issues,” the report found. It also indicated that most retirees stopped working totally upon retirement, yet many pre-retirees expect to have to work postretirement. Kessler said she believes the pre-retirees are “right” to anticipate having to work part-time after retirement because of that group’s general lack of adequate savings and insurance coverage to support full retirement immediately.
The study revealed that 51 percent of retirees do not believe delaying retirement would increase their security, while among pre-retirees, 54 percent do. Despite these perceptions, “postponing retirement for one or two years makes a big difference,” according to Kessler. “You can continue your employer health insurance, exhaust less of your personal savings and increase your Social Security benefits.” Pre-retirees are thinking of retirement in terms of employer health benefits, Kessler noted. The study revealed that 59 percent of pre-retirees believe that continuing to receive health insurance from their employers would be an important benefit.
Seventy-five percent of retirees and 69 percent of pre-retirees plan to maintain healthy lifestyle habits, McGivney observed, recognizing that good health significantly lowers the need to deplete savings. Health status is important to retirement success, Kessler confirmed from data acquired in the survey. Healthy retirees and pre-retirees also “look more like affluent retirees,” according to the study. Healthy individuals tend to act like they are affluent in using “affluent risk-management strategies.” Health status affects financial status. Those with good health tended to eliminate debt, maximize savings and work longer. Kessler concluded, “What the study shows is that wealth and health affect retirement planning decisions.”
©2009, CCH. All Rights Reserved.
