A new report by Transamerica Center for Retirement Studies, “A Precarious Existence: How Today's Retirees Are Financially Faring in Retirement,” demonstrates the importance of retirement planning as we age, which ultimately determines our vulnerability.
"Some retirees could have been better at saving during their working years, while others may have done everything right and still find themselves facing a savings shortfall,” explained Catherine Collinson, CEO and president of TCRS. “When they started their careers decades ago, the retirement landscape and planning related assumptions were very different – and they will continue to evolve. Individuals now need to do more to prepare themselves," said Collinson.
The study shows that fewer than half of retirees (46 percent) agree that they have built a large enough retirement nest egg, with only 16 percent "strongly" agreeing and 30 percent "somewhat" agreeing, according to a new survey.
"Retirees' circumstances regarding when and how they retired exemplify common risks: employment issues, ill health, and financial need. They offer a cautionary tale for those currently in the workforce on the importance of maintaining good health, financial planning, and competitive job skills," said Collinson. "Retirees' experiences also underscore the need for careful planning, including contingency plans if forced into retirement sooner than expected."
“A Precarious Existence: How Today's Retirees Are Financially Faring in Retirement” provides detailed findings about their lives in retirement, financial situation, living arrangements, and plans for long-term care. Retirees are still relatively young at age 71 (median), healthy, and have a positive outlook on life. They are spending more time with family and friends (61 percent), pursuing hobbies (44 percent), traveling (39 percent), and engaging in a variety of other activities. Most are taking steps to protect their health (although they can do even more). Nevertheless, they are financially vulnerable.
"Many of today's retirees were forced into retirement before they were ready, which translates into fewer years earning income in the workforce – and more time in retirement," said Collinson. The survey finds that retirees are retiring at age 63 (median), with more than half (56 percent) indicating they retired sooner than they had planned. Among them, 54 percent cited employment related reasons such as job loss, organizational changes, general unhappiness, and/or took an incentive or buyout. Forty seven percent cited health and/or family related reasons. Only 11 percent retired early because they had the financial ability to do so.
Retirees are getting by financially for the time being. However, the survey finds indicators of their vulnerability:
"Retirees are already living within limited means and risk outliving their savings. How would they be able to cope with a financial shock such as long-term care expenses?" said Collinson.
Many retirees are still relatively young; however, as they age their health will likely decline. In preparation, they should be planning for long-term care and formally documenting their wishes. Unfortunately, many have not done so:
"Retirees may find themselves needing long-term care but unable to afford it. The likely scenario is that they will call upon their adult children to serve as caregivers, who could be putting their own employment and future retirement at risk by taking on this responsibility. Retirees who lack adequate financial resources will also put added strain on Medicaid and other support services," said Collinson. Transamerica Institute's 2017 survey of caregivers outlines the risky situation faced by family caregivers.
"As a nation, the United States is approaching critical crossroads and we need to be asking the right questions about how to prepare our aging population for retirement. What can we do to strengthen the retirement system to help ensure that all Americans can retire with dignity? Policy makers, industry, employers, academics, non profits, communities, individuals and families must join together to innovate solutions. The sooner we take steps to modernize our retirement system, the sooner we can achieve positive results," said Collinson.
Retirees shared the following insights, which may be useful for today's workers in their preparations: