Society of Actuaries' Risk Report Highlights Impact of Inflation on Retirement Planning
SCHAUMBURG, Ill., Feb. 28, 2011 /PRNewswire/ -- Compared to other planning activities, only 72 percent of pre-retirees and 55 percent of retirees are calculating the effects of inflation on their retirement planning, according to a new report from the Society of Actuaries (SOA). This finding highlights the need for individuals to better understand and manage inflation and longevity risks when planning for retirement. The report, Process of Planning and Personal Risk Management, identifies key findings from a survey of retirees and pre-retirees as it relates to retirement risk management strategies.
Pre-retirees are more likely than retirees to express concern about inflation, investment and longevity risks. For example, the report findings indicate that seven in 10 pre-retirees (71 percent) are very or somewhat concerned about inflation risk, compared with six in 10 retirees (58 percent). Similarly, six in 10 pre-retirees (62 percent), and half of retirees (52 percent), are concerned about interest rate changes impacting their retirement. Pre-retirees are also more likely than retirees to report being concerned about depleting their savings (58 percent vs. 47 percent) and maintaining a reasonable standard of living (56 percent vs. 45 percent). Compounding inflation and savings concerns, 39 percent of pre-retirees and 36 percent of retirees withdraw money from their savings as needed with no set plan.
"By not having a set plan for how they spend savings, these individuals are exposing themselves to more risks down the road, such as outliving their assets or not having funds to manage unexpected long-term care costs," said actuary Steve Vernon, FSA, MAAA. "Individuals always need to take inflation into consideration and now is the time to take action to address these inflation and longevity concerns by planning for multiple scenarios."
Aside from inflation concerns, the report highlights other findings on managing risk in retirement, including:
- Only five percent of pre-retirees have a planning horizon to or beyond their life expectancy.
- Few individuals look 20 years or more into the future when making important financial decisions (13 percent for pre-retirees and seven percent for retirees).
- Sixty-eight percent of retirees create a plan to manage their money and how to spend it each year so they do not outlive their finances.
- Seventy-three percent of retirees consider allocating their investments and savings to different types of assets. Only 24 percent of retirees have already purchased or plan to buy a product with guaranteed income for life.
- Ninety percent of pre-retirees have already eliminated or plan to eliminate all of their consumer debt as a means to protect them financially (81 percent for retirees).
This SOA report highlights findings from the 2009 Risks and Process of Retirement Survey Report, and focuses on the issues in the survey specifically as they relate to the process of planning and personal risk management for retirement. The survey was conducted through telephone interviews of 804 adults age 45 to 80 in July 2009 and asked respondents about a number of risks relating to retirement. For the full report "Process of Planning and Personal Risk Management," please visit http://www.soa.org/files/pdf/research-key-finding-process-planning.pdf.
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. To learn more, visit www.soa.org.
SOURCE Society of Actuaries