Inflation, Interest Rates and Rising Healthcare Costs Top List of Retiree & Pre-Retirees' Concerns

May 16, 2011, 08:00 ET from Society of Actuaries

Society of Actuaries Survey Examines Key Risks in Retirement in the Recovering Economy, Offers Potential Solutions

SCHAUMBURG, Ill., May 16, 2011 /PRNewswire-USNewswire/ -- Today's seniors are living longer and spending more time in retirement than ever before, and many are worried their savings won't last. Four in 10 retirees (38%) and half of pre-retirees (49%) say they are much more concerned about their financial situation in retirement than they were prior to the economic downturn. But many have not taken steps to protect their nest egg from further economic and financial turmoil, according to a new report from the Society of Actuaries (SOA).


The report, The Impact of the Economy on Retirement Risks, assesses the impact of the recession on retirement planning based on findings from the 2009 Risks and Process of Retirement Survey Report, also from the SOA. The newly released report addresses factors affecting retirement security, including the effects of delayed retirement, equity investments and portfolio management, changes in spending habits, and new approaches to quantifying adequacy of retirement wealth. Respondents were evaluated on their awareness of retirement risk, how their awareness has changed since the recession, and how they have adjusted the management of their finances as a result.

Keeping Retirees up at Night – Key Concerns and Impact on Planning

The economic downturn made many respondents feel the need to take steps to improve their financial situation. While only one-quarter of retirees (23%) feel they have to go back to work, two-thirds of pre-retirees (64%) indicate they now feel they need to work longer. However, working longer may not be feasible for many people approaching retirement due to job losses and the difficulty of finding work in the current tough job market. More than four out of 10 people end up retiring earlier than planned.

"One consequence of the recession that our report reveals is the real disconnect between when current non-retiree respondents said they expect to retire, versus the earlier ages at which current retirees are actually retiring," said actuary and retirement systems expert Anna Rappaport. "It's important for upcoming retirees to realize they may spend more time in retirement than they are planning for, and will need to fund those extra years. A higher level of financial literacy and careful planning is critical for those whom working longer is not an option, and for those who will have to rebuild and grow their retirement savings."

While concern about retirement risk has remained stable among those already retired, pre-retirees have been more affected by the economic turmoil of 2007-2009. Both retirees and pre-retirees expressed concern about maintaining the value of their savings and investments with inflation (58% of retirees very or somewhat concerned, versus 71% of pre-retirees).  Half of retirees and more than six in 10 pre-retirees also expressed concern about having enough money to pay for adequate health care (49% of retirees, 67% of pre-retirees), and their income varying from changes in interest rates (52% of retirees, 62% of pre-retirees). Despite these concerns, only a small minority of retirees (17%) and pre-retirees (25%) feel an increased need for professional financial advice as a result of the recession.

"The recession was a devastating financial event that affected the lives of many Americans. Many individuals nearing retirement were affected in a more acute and urgent way than most other segments of the population," said actuary Steve Vernon, who writes and consults on retirement planning.  "Unlike those still working for many years to come, individuals nearing retirement have minimal time, if any, to make financial adjustments and rebuild their nest egg after the adverse conditions of the last few years."

Real Estate – A Key Retirement Asset

Declining housing values are another issue related to the economic downturn and recovery that have impacted both retirees and pre-retirees. Housing is a major asset for many Americans nearing retirement age, and many have little retirement savings beyond whatever pensions they have plus the equity in their homes.  The economic downturn had serious implications for retirees with large mortgages, or those who had planned to sell their house to help finance retirement – but now either can't or won't.  Only roughly two in 10 retirees (16 percent) and pre-retirees (20 percent) have already used or plan to use equity in their home to help finance their retirement, according to the report.

Except for outright sale of their homes and downsizing, options for the use of such equity to help finance retirement are not part of the plan for most retirees. Those who do plan to tap into their home equity, plan to do so by selling their home (45 percent of retirees, 56 percent of pre-retirees). They are much less likely to access this equity to help finance retirement through a home equity loan (20 percent of retirees, 9 percent of pre-retirees), a reverse mortgage (12 percent of retirees, 9 percent of pre-retirees), or a new mortgage (5 percent of retirees, 0 percent of pre-retirees).  To complicate matters, retires are less likely than they were in 2005 to have paid off their mortgage going into retirement (48 percent down from 56 percent).

Strategies for Retirement Saving in the Aftermath of the Downturn

Eliminating consumer debt by paying off credit cards and loans is the strategy retirees and pre-retirees say they most often use or plan to use to manage retirement risks (81% of retirees, 90% of pre-retirees).  There is an increase in the percentage of retirees reporting they have already cut back on spending (56 percent, up from 48 percent since 2007), and moved assets to increasingly conservative investments (43 percent, up from 33 percent).  

"The recession should have served as a wake-up call, yet our report demonstrates that for too many pre-retirees, planning horizons are much shorter than their remaining life expectancy, with the majority failing to plan for the financial consequences of living beyond that point," said Vernon. Employers, employees and retirees need to better prepare themselves and the generation ahead for the challenges of providing for a secure retirement."

About Actuaries

Actuaries bring a complex future into focus by applying unique insight to risk and opportunity. Known for their comprehensive approach, actuaries enable smart, more confident decisions.

About the Society of Actuaries

The Society of Actuaries is an educational, research and professional organization dedicated to serving the public, its members and its candidates. The SOA's mission is to advance actuarial knowledge and to enhance the ability of actuaries to provide expert advice and relevant solutions for financial, business and societal problems. The SOA's vision is for actuaries to be the leading professionals in the measurement and management of risk.

SOURCE Society of Actuaries