May 1, 2012

The Retirement Risks We Face: A New Study

In late March I was provided with a copy of an 2011 annual survey conducted by Matthew Greenwald and Associates and the Employee Benefit Research Institution on behalf of the Society of Actuaries (there's a mouthful!) This major study of 1,600 individuals between the ages of 45-80 takes a look at the risks many of us see ahead in our satisfying retirement years. If you would like to look at the entire report I have provided a link at the end of this post.

For our purposes, here are some of the key findings:

Sharp Increase in Retirement Concerns

  • Retiree concerns about the various risks associated with retirement, which had remained fairly stable throughout the previous five surveys, increased sharply in 2011. Pre-retiree concern about many risks also increased, approaching or equaling the spike in pre-retiree concern measured in 2003.

  • Retirees and pre-retirees continue to express the highest level of concern about the value of their savings and investments keeping up with inflation (69 percent of retirees and 77 percent of pre-retirees very or somewhat concerned).

  • Retirees and pre-retirees also report high levels of concern about having enough money to pay for adequate health care, having enough money to pay for long-term care in a nursing home or at home, being able to maintain a reasonable standard of living for the rest of their lives, income varying based on changes in interest rates, and depleting all of their savings.

Steps Taken to Improve Retirement Situation

  • Retirees and pre-retirees continue to rely on reducing spending, increasing savings, and debt reduction to manage retirement risks. More than half report they have already cut back on spending and tried to save as much as possible. Approximately half also say they have eliminated all of their consumer debt  (editorial comment from me...Great!).

  • Others use asset management strategies to protect themselves against financial risks. At least half of retirees and pre-retirees report they have already invested money in stocks or stock mutual funds. Many have also moved their assets to less risky investments as they age.

  • Retirees are more likely than in 2009 to report having already implemented several risk management strategies, including saving as much as possible, cutting back on spending, and buying an annuity or choosing an annuity option from an employer plan. Pre-retirees are more likely than in 2009 to indicate they have already bought an annuity or chosen an annuity option from an employer plan.

How Long Will We Live after Retirement?

  • There is a strong tendency toward underestimating average life expectancy. When asked to estimate how long the average person their age and sex can expect to live, more than six in ten retirees and half of pre-retirees provide a response that is below the average. Only about one-quarter overestimate average life expectancy. 

  • Compared to 2005 results, pre-retirees are more likely to overestimate average life expectancy. Retiree estimates of average and personal life expectancy have changed little.

  • Retirees and pre-retirees most often say they would need to reduce their expenditures significantly if they were to live five years longer than expected. Other steps would include dipping into money that might otherwise be left to children or other heirs, depleting all of their savings, and downsizing their housing.

When Will We Retire?

  • More than eight in ten retirees report they retired before the age of 65. However, half of pre-retirees indicating they will retire say they expect to retire at age 65 or later. This difference between expected and actual retirement age has been observed in prior studies in this series.

  • While three-quarters of retirees report they retired by stopping work all at once, only about four in ten pre-retirees plan to retire that way. Instead, pre-retirees plan to gradually reduce the number of hours they work or continue to work part time in retirement. One-third of retirees who stopped work all at once eventually returned to paid employment.

  • Retirees who worked in retirement and pre-retirees who plan to do so say major reasons for working are to stay active and involved and wanting additional income.

  • Two in ten retirees working in retirement and three in ten pre-retirees who plan to work in retirement report they started or plan to start a small business or become self-employed.

Survey differences between men and women
  1.  Among both retirees and pre-retirees, women are more likely than men to express concern about most of the retirement risks mentioned in the study. They are also more likely to have cut back on spending to help manage these risks.
  2. Women tend to provide estimates of population and personal life expectancy that are three to five year higher than the estimates provided by men. They are also more likely to think there would be negative financial consequences if they lived five years longer than expected.
  3. Among retirees, men are more likely than women to report having received money or income from a defined benefit plan and to be currently receiving guaranteed income other than Social Security.
  4. Among pre-retirees, a larger percentage of women than men think they need to save more money and work longer as a result of the changes in the stock market and the economy.
 Lots of information in this report. If your eyes didn't glaze over you may have come to the same conclusion that I did: as Satisfying Retirement has noted for the past two years, retirees are getting smarter about the risks we face  and the aggressive steps that must be taken to deal with the changing landscape.

We know what to do to help ourselves though we don't always follow through. Women tend to be more realistic than men about the problems ahead and what steps they will have to take. If you'd like to read the entire report it is available here:  Full Research Report

Did you learn anything new or have any of your beliefs reaffirmed?


  1. Some of it's familiar stuff -- for example, it says for life expectancy that "half of pre-retirees provide a response that is below the average." Well, that sounds like it's self-evidently dead-on accurate! (Forgive the pun.)

    The responses on when we will retire are interesting. It seems the whole notion of retirement has been upended in the last decade. Few people anymore work for 40 years, get the gold watch, then stop working. Instead, we step-ladder into retirement -- ease back on working hours; or retire early but find another job; or work part time; or turn a hobby into a money making venture.

    The concept of a career has changed -- some for the better, some for the worse -- but most of us have managed to adapt and survive.

    1. Yes, hence the concept of "average." I don't write 'em, just report 'em.

      The stair-step approach to retirement was pretty much unheard of even 15-20 years ago. But, actually easing into retirement might be better for a lot of folks who find an abrupt chance too unsettling.

  2. Thanks for the report, Bob. I agree with Sightings that the concept of a career has changed. Even the word "retirement" doesn't mean what it used to. I am a "retired" U.S. Air Force colonel but am deep into a second career as a college professor. I have found that many people who say they are retired from a job just mean that they don't work there anymore. Anyway, nobody knows what the future holds for inflation, for the cost of medical care, or even for the cost of basic necessities such as food. I think some retirees in the past mistakenly assumed that things would go "according to plan" and only later appreciated how fast things can change. In contemporary times many pre-retirees have the opposite problem of being too paralyzed by the fear of change to actually pull the trigger and retire. Phased retirement seems to be a reflection of retirement strategies adjusting to a perception of greater chaos in times to come.

    1. Very well expressed, Nik. Retirement is no different from any other phase of life...change is the only constant. Personally, I am quite happy that retirement is not what it used to be...sitting in a rocker on the porch or playing endless golf. Life is way too exciting to settle for that.

  3. Bob, nothing new here but that might be due to the fact that I read a lot on the subject. Like you I take positives from the article, such as the fact that Americans have woken up to the fact that no one is looking out for their retirement needs but the person in the mirror, and that SS is not the savior of an oft-ignored retirement plan. I also took that our children's generation will likely be better prepared, at least mentally, for the new reality facing Americans regarding savings and planning for the later years. Whether they will have the financial wherewithal to make it happen is debatable, but at least mentally they are better prepared. Good article - not doom and gloom but rather just how it is. Now it is up to the readers to do something about it.

  4. Good point by Nik -- that many pre-retirees are too paralyzed by fear to make any changes at all. But in my experience, it's far better to make a change yourself than to have change forced upon you.

  5. Chuck & Tom,

    A lot of confirmation and some encouragement in this report. I did notice the major shift in when current retirees stopped working and when pre-retirees expect to stop. That finding alone speaks volumes about what is happening.

  6. Bob,

    I am always interested in articles like this, because I'm worried about the future economic security of America's aging population. Not my own security, so much. I think I could quit working now (in my mid-50s) and manage, although at a very reduced consumption level.

    I've been extraordinarily lucky in my finances, and have enhanced that with some good planning of my own, but I recognize most people haven't had my opportunities or my good luck. I worry about the low income population that live on the financial edge right now, how they will manage if an illness makes them unable to work. If they have limited health care options, that will make things even worse. I don't want the society I live in to have a large population of people, especially the elderly, living in poverty.

    I know some readers are now thinking, so do something about it, and I do. I volunteer (and so I see how little income some elderly have now, the supposed golden age of retirement, and how much low income workers are struggling to survive, never mind planning for retirement) and I give financial contributions. But one person can't solve a problem that is so big. Or, I can't, anyway! I have no answers, just worries.

    1. One person can positively affect one other life through helping the way you do. As individuals that may be all we can do, but it is blessing to that one life you have helped. Cherish your ability to do so.

      I worry about the way our society seems to be developing a hardened heart. "I have mine and if you don't, then it is your fault, or certainly not my concern" is the message too many people are conveying.

      A comment was left last week on a post in which the fellow said he feels guilty at times because he is blessed with a good income, health plan, and retirement plan and so many of our fellow citizens are not. It is a tough subject and one I hope to address at some point in the near future.

  7. Steve in Los AngelesThu May 03, 09:53:00 PM MST

    I do not want to sound like a "broken record". However, I may be repeating myself somewhat. Nonetheless, I have a number of comments with regard to how I am approaching my later stages of retirement. It is true that I am retired in the sense that I am receiving payments (due to service retirement) from a defined benefit plan through a former employer (a government agency). However, I have been working for close to three years part time for a private company employer.

    Although I currently am age 56, I see my life as many years of future retirement. Therefore, I have saved accordingly on the presumption that I will be around to celebrate my 100th birthday. (I may be OVERESTIMATING my longevity. However, I prefer to overestimate than underestimate my longevity, especially since I am so healthy. I never want to worry about money again.)

    My financial well-being has been based on many years of very disciplined saving and investing as well as some luck (i.e., the booming real estate market from 2001 through 2004).

    Variable annuities with lifetime income riders will play a major role in my long-term finances. Although financially I will remain comfortable as long as I am around, I will manage my spending very conservatively. I ALWAYS will live below my means as doing so is part of my nature and personality. From age 70 onward, I plan to live on only 50 percent of my annual income AT THE MOST.

    1. The study shows most retirees underestimate their longevity. At predicting 100 years old for your life span, that isn't going to be you!

  8. The Law of Attraction says we attract what we think about. What if we focused on positive things, rather than worrying? Wouldn't it be better to put our attention to things that can make our life better? Let's dive into good things like: ways to empower ourselves; positive planning ahead; our health and fitness; our brain health (vital for a good future!); our relationships; yes, and our wealth; our spirituality; our attitudes and emotions, and developing our goals to achieve the most we can in each of these important areas of our lives. Then, focus on giving forward to those coming after us. Let's use the wisdom we have gained over the many years of our lives to benefit others. It is a real feel-good opportunity!

    Paul Cunningham

    1. I couldn't agree more. Occasionally I have been accused of being hopelessly optimistic based on my posts and how I portray my retirement. That may be true, but for me living that way is the only logical way to approach things. I can't change the past and I can't control the future, so all I can do is affect the present with my attitude, mindset, and how i use my time.

      Thanks Paul and welcome (I think this is your first comment). Your web site supports your comment here...looking good in your 80's.