No Plan? Big Problem When It Comes to a Successful Retirement

planThree things jumped out at me when I saw the new results from EBRI’s Retirement Security Projection Model® (RSPM) showing that more American workers are on track to have a successful retirement — or at least one where they won’t run short of money: one, that’s good news; two, a lot of people are still not on track for a financially secure retirement; and three, even those that are on track are not guaranteed a “successful” retirement, as retirement is not just about money.

According to EBRI’s model, 59.4 percent of American households between the ages of 35 and 64 are projected to have sufficient money in retirement so that they won’t run short — meaning their aggregate resources in retirement will cover average retirement expenses as captured in the Consumer Expenditure Survey, as well as medical expenses such as nursing-home and home-health care. That is good news, and future analysis by EBRI will examine the driving forces behind this positive development.

At the same time, the finding also means that 40.6 percent of American households are not on track for a financially successful retirement. Many probably assume they will just work longer. That may be unlikely: according to the 2018 Retirement Confidence Survey, while the median worker believes he or she will retire at age 65, in reality, the median retiree left the work force at age 62. Further, while nearly a third of workers believe they will retire at 70 or older, only 7 percent of retirees actually did so.

The Society of Actuaries’ Committee on Post-Retirement Needs & Risks’ report on The Decision to Retire and Post-Retirement Financial Strategies provides sobering insights into why this is so. In a series of eight focus groups, people who voluntarily left the work force within approximately the past decade were asked a series of questions about retirement, including why they had retired.

A key finding was: “Even though retirement was voluntary, most of the participants retired in response to health issues, challenges in their workplace, or the need for family caregiving.” The quotes from focus group participants describe feelings of frustration with the workplace, weariness, inability to work due to physical limitations, lack of opportunities, and family obligations. To quote just one of the focus group participants: “I wanted to work until I was 65. But, my husband just passed about a year and a half ago. When he really got to the point, where I figured I needed to be there with him, I just cut it off at 62.”

Likewise, the prospects for working in retirement are also somewhat grim: while 4 in 5 workers expect to work for pay after retiring, just 1 in 3 retirees actually reported that they did so. Clearly a reality check is in order for those who simply believe continued work is a reasonable alternative to preparing for retirement.

But even those with the financial means to retire may not be as prepared as they think. According to the Retirement Confidence Survey, fewer than half of workers have thought about how they will occupy their time in retirement. In her article “Reboot, Rewire or Retire? Personal Experiences With Phased Retirement and Managing A Life Portfolio,” actuary Anna Rappaport  talks about her experiences since retiring in 2004, sharing how important it is to plan the way you will spend your time and noting: “One cannot be on vacation all of the time. Vacation is a break from what we normally do. People who retire with the idea of an endless vacation are likely to be disappointed or bored within a year or two, if not sooner.” Instead, Rappaport described a successful, happy retirement as a life portfolio consisting of four key elements that have been carefully thought through and maintained:

  • Health: including activities to maintain health and a support system.
  • People: family, friends, community organizations, and maintaining and making new contacts.
  • Pursuits: work, volunteering, hobbies, community activities, caregiving, travel, and other activities that take time and provide satisfaction.
  • Places: home, travel, and community.

Rappaport concludes that “each of us should have a life portfolio as well as a financial portfolio. Just as a financial portfolio requires focus, diversification, and management, so does a life portfolio. However, the strategies that make sense for the life portfolio are very individual, and there are few established tracks for defining and managing a life portfolio.”

The key here for both the financial and lifestyle aspects of retirement is planning. Yet the Retirement Confidence Survey shows that only 4 in 10 workers have tried to figure out how much money they will need to live comfortably in retirement.  Join EBRI’s American Savings Education Council on April 30 to hear the results from the 2019 Retirement Confidence Survey as well as the latest tools, information, education, and services that government agencies are making available to American workers and retirees to help them do a better job with the planning process as well as managing their finances.

About ebriorg
President and CEO, EBRI

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