New research report provides insights on retirement risks

While Many Pre-Retirees Plan to Work Longer, They May Underestimate Life Expectancy and Don't Have a Financial Plan in Place

Around 70 percent of pre-retirees plan to work longer in retirement, while only 37 percent of retirees took this approach to address retirement risks. These findings are one of several retirement planning issues covered in the Society of Actuaries (SOA) new research report, "2013 Risks and Process of Retirement Survey." The report provides insights on how Americans decide to retire and how they manage resources in retirement.

The online survey of retirees and pre-retirees from ages 45 to 80 provides a glimpse into individuals' financial approaches for retirement and it identifies gaps in retirement preparations. The biggest issues of concern for retirees include inflation, paying for health care and the risk of depleting savings. The survey findings include:

• Thirty-eight percent of pre-retirees expect to retire by ages 65 to 67 and 15 percent of pre-retirees do not expect to retire. Of the surveyed retirees, nearly 30 percent retired under the age of 55 and another 24 percent retired between ages 55 to 59.
• Forty-one percent of pre-retirees plan to stop working for pay all at once, compared with 78 percent of retirees who stopped working for pay all at once. Another 35 percent of pre-retirees plan to work for pay part-time or periodically.
• Health problems would be the primary reason for an early retirement, according to 42 percent of the surveyed pre-retirees.
• One-quarter of both pre-retirees (25 percent) and retirees (27 percent) said disability or no longer being able to cope with the physical demands of the job would lead to an early retirement.
• Both the surveyed retirees and pre-retirees plan to reduce spending, increase savings and reduce debt to manage retirement risks. More than 90 percent of both pre-retirees and retirees plan to eliminate all of their consumer debt. A majority of pre-retirees (93 percent) plan to save as much money as possible and 88 percent of pre-retirees plan to cut back on spending to manage risks.
• Both retirees and pre-retirees have a median planning horizon of ten years. Around 45 percent of pre-retirees think it is very possible to plan for day-to-day expenses, though they are less likely to plan for other issues in retirements. 

"The SOA report compares what individuals plan to do to in retirement versus the reality of what decisions retirees actually made," said actuary Anna Rappaport, FSA, MAAA, and Chair of the SOA's Committee on Post-Retirement Needs and Risks. "Many people may not be able to physically work full time into their later years, or they may be faced with unexpected risks and shock events impacting their savings and retirement income. While there is no one solution, individuals need to plan ahead for the multitude of probabilities, from how long they could live, to how much more money they or their spouse may need to avoid outliving their assets."

Rappaport noted, "What is also troubling is that many retirees end up retiring much earlier than planned. In the 2013 survey, pre-retirees expect to retire at a median age of 65, but the surveyed retirees had retired at a median age of 58."

Only 36 percent of the surveyed pre-retirees have a financial plan, compared with 67 percent of retirees who have a financial plan. Actuary Carol Bogosian, ASA, said, "It is concerning that a large amount of individuals do not have a financial plan before they reach retirement. Pre-retirees are obviously concerned about retirement issues, but more financial education and planning ahead for unexpected risks are all needed."

The surveyed retirees and pre-retirees had a median life expectancy of 85 to 89 years. However, there is a disconnection between how long pre-retirees expect to live and at what age their longest living family members reached.

Actuary Cindy Levering, ASA, EA, MAAA, said, "Nine percent of pre-retirees expect to live to age 91 or older. However, 48 percent of pre-retirees noted that their longest living family members reached age 91 or older. There clearly is a reality gap between pre-retirees' family history and the likelihood of living a long life. Either way, individuals still need to plan ahead for financial shocks."