Despite High Levels of Concern Over Retirement, New Actuarial Study Sees Little Change Among Americans in Planning for the Future

SCHAUMBURG, Ill., April 1 /PRNewswire/ -- While the economic downturn has affected employment and the way Americans manage their spending and saving, what hasn't changed is the level of retirement planning, or lack thereof. According to a new report from the Society of Actuaries (SOA), for both 2007 and 2009 almost one-third of pre-retirees (individuals currently in the workforce) stated that retirement will not really apply to them. Of this group of pre-retirees, 31 percent said they will be financially unable to retire, and 23 percent will choose to continue working. Both pre-retirees and retirees say they plan to prepare for retirement risks, but little has changed in how they are addressing the gaps in strategies, such as concerns with protecting inflation from outpacing savings or the risk of outliving their assets.

The fifth bi-annual SOA report "Risks and Process of Retirement" notes that the proportion of individuals planning to save money and work as much as possible is statistically unchanged compared to before the economic downturn. Inflation still reigns as the main concern, superseding healthcare risks, for both pre-retirees and retirees.  

For pre-retirees, the findings from 2009 mirrored those in 2007. This includes:

• In terms of strategies to manage risk, a little more than half of pre-retirees said they already saved as much as they could.
• Less than one-quarter of pre-retirees said they do not plan to completely pay off their mortgage.
• Fifty-five percent of pre-retirees in 2009 invested a portion of their money in stocks or stock mutual funds compared to 54 percent in 2007.
• Twenty-eight percent of pre-retirees planned to retire from their primary occupation at age 65.

For retirees, the findings include:

• About one-fifth planned to move to a smaller home or less expensive area.
• Eight percent of retirees in 2009 and nine percent in 2007 planned to buy long-term care insurance.
• About three-quarters had no plans to purchase a financial product or choose an employer plan option to have a guaranteed annual level of income for life.

There is an overall misperception among retirees and pre-retirees that a strategy of "planning for the short-term" will last them through the remainder of their lives. For example, more than half of retirees (54 percent) and nearly two-thirds of pre-retirees (64 percent) agreed that if someone manages their finances well during the first three years of retirement, their money will last for the rest of their retirement.

"More long-term planning is needed for individuals, and it is imperative that they look beyond five or ten years, because that is the tip of the iceberg for many individuals nearing retirement or early into their retirement," said Anna Rappaport, FSA, EA, MBA, chair of the SOA Retirement Risk Survey and owner of Anna Rappaport Consulting. "Individuals are clearly concerned about their retirement and the associated risks, but many are still not taking the necessary actions and planning to address these issues."

Eighty-one percent of retirees and 90 percent of pre-retirees indicated they eliminated or plan to eliminate all of their consumer debt, compared to 79 percent of retirees and 89 percent of pre-retirees in 2007.

"We've found that retirees and pre-retirees continue to try to protect themselves against financial risks by decreasing debt, increasing savings and cutting back on spending," said Rappaport. "These steps are simple, but they are only a starting point. More follow-through is needed on the larger actions, such as considering purchasing a product that guarantees lifetime income or planning for widowhood and severe healthcare challenges."

The SOA report highlighted the following among pre-retirees and retirees, including a continued concern about inflation, increased worries about mortgage debt, a disconnect between perception and reality for retirement planning, a decrease in concern for long-term care, and still no general acceptance of guaranteed lifetime income through annuities or other financial tools. The specific findings include:

• Two-thirds of retirees (66 percent) and eight in ten pre-retirees (79 percent) report the recent stock market and economic downturn has affected their financial concerns about retirement.
• Six in 10 retirees and seven in 10 pre-retirees (up from six in 10 in 2007) expressed concern that the value of their savings and investments might not keep pace with inflation.
• Twenty-six percent of pre-retirees do not have plans to calculate how much inflation will affect how much money they have later in life.
• Roughly half of retirees (49 percent) and two-thirds of pre-retirees (67 percent) expressed concern about having enough money to pay for adequate healthcare.
• Retirees are now much less likely to indicate they have already completely paid off their mortgage (48 percent, down from 76 percent in 2007).
• Pre-retirees' visions for the future do not match the realities that current retirees have experienced. Pre-retirees are more likely to state they will receive income from retirement savings plans, such as an IRA, bank or investment account, than retirees are to state they actually received such income (66 percent versus 45 percent).  
• Pre-retirees (planned use) are more likely than retirees (actual use) to invest some or all of their funds that provide a series of regular payments where they control how the principal is invested (67 percent versus 43 percent).
• Almost half of retirees are very or somewhat concerned about having enough money to pay for extended care at home or in a nursing home (46 percent).

"From an actuarial perspective, we recommend a deeper understanding of the specific long-term retirement risks individuals need to address for their situation," said Valerie Paganelli, FSA, EA, MAAA, owner and president of Paganelli Consulting. "There was a surprising level of inaction by individuals in dealing with major retirement issues before the economic downturn and still again two years later. Changing one's behavior is not an easy process, but individuals need to jump-start the planning process today, no matter what their age. Awareness and preparation are needed for any number of emerging risks and unexpected challenges leading up to and during their personal retirement profile."

The SOA report results were developed from a 2009 telephone survey of 804 Americans aged 45 to 80. The margin of error for the survey results is plus or minus five percentage points. Following this survey, the SOA will release a series of retirement reports on the financial crisis impact, widowhood and workforce management later this year. For the full report "Risks and Process of Retirement" please visit http://www.soa.org/research/pension/research-post-retirement-needs-and-risks.aspx.

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. To learn more, visit www.soa.org.

SOURCE Society of Actuaries