Data and Research August 6, 2018

Educational Resources Can Increase Employees’ Retirement Confidence

A study finds employees with access to employer-sponsored plans are most likely to indicate retirement readiness, and the IALC suggests plan sponsors increase education.

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A recent white paper from the Indexed Annuity Leadership Council (IALC) discusses the differences between blue-, white- and gray-collar workers in retirement readiness, and what employers can do to help narrow the gaps.  

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The study, “The State of America’s Workforce: The Reality of Retirement Readiness,” surveyed over 2,000 full-time U.S. workers ages 40 to 70 and found that, at a glance, about one-fifth lack the ability to retire, with blue- and gray-collar workers at the lower end of the spectrum. On average, 49.1% of white-collar workers indicated they are “somewhat ready” for retirement while 44.7% of blue- and gray-collar workers are “not very ready.”

The study finds 79% of respondents reported, to varying degrees, feeling worried about retirement, with 41% feeling very or somewhat worried—that number slightly higher for blue- and gray-collar workers. The remaining 21% of workers reported feeling no anxiety or unease over their forthcoming retirement years.

As to the influence of company size, companies with fewer than 50 employees are less likely to offer retirement planning options; larger companies are more likely to have workers who feel informed about retirement planning and excited about the years that lie ahead.

Pre-retirees with access to a workplace plan such as a 401(k) or pension are most likely to feel retirement ready, the study found. Fifty-nine percent of those feeling retirement-ready have access to a 401(k), while only 39% of workers who are not retirement ready do. Those prepared pre-retirees are five times as apt to own individual retirement accounts (IRAs), eight times as apt to have mutual funds and 10 times as apt to have purchased annuities.

To increase retirement readiness in industries where it is the lowest, the report recommends several strategies. Aside from implementing a 401(k) plan with automatic enrollment, plan sponsors for blue- and gray-collar work forces—e.g., those in the office or administrative support, food preparation and serving, transportation, and education, training and library trades—can implement seminars and informational fairs hosted by 401(k) plan providers, along with providing other educational resources.

Additionally, IALC says, workers will find it helpful to connect with an adviser, engage with online calculators and budgeting tools, and research their various retirement saving options.

More information from the study can be found here.

Data and Research August 6, 2018

Inadequate Income, Health Expenses Top Reasons for Retiree Bankruptcies

Researchers’ analysis of data from the current Consumer Bankruptcy Project suggests that financial struggles, namely a decline in income, was a leading reason for older Americans’ bankruptcies.

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The risks associated with aging, reduced income, and increased health care costs have been offloaded onto older individuals, while at the same time, older Americans are increasingly likely to file for bankruptcy, according to a paper by researchers from different universities.

Using data from the Consumer Bankruptcy Project (CBP), the researchers find more than a two-fold increase in the rate at which older Americans (age 65 and older) file for bankruptcy and an almost five-fold increase in the percentage of older persons in the U.S. bankruptcy system. One in seven bankruptcy filers is of retirement age. Within the oldest cohort, those age 75 and older, there has been a near ten-fold increase since 1991. In 1991, this group constituted only 0.3% of filers, as compared to 3.3% now.

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“The magnitude of growth in older Americans in bankruptcy is so large that the broader trend of an aging U.S. population can explain only a small portion of the effect. In our data, older Americans report they are struggling with increased financial risks, namely inadequate income and unmanageable costs of health care, as they try to deal with reductions to their social safety net. As a result of these increased financial burdens, the median senior bankruptcy filer enters bankruptcy with negative wealth of $17,390 as compared to more than $250,000 [of wealth] for their non-bankrupt peers,” the researchers write in “Graying of U.S. Bankruptcy: Fallout from Life in a Risk Society.”

 

Reasons for retiree bankruptcy

 

Unstable employment is particularly problematic for older people, the researchers note. When they lose jobs, it takes them significantly longer to find new ones and when they do, they typically earn less than what they earned before. In addition, they say, full Security benefits now begin at 70, rather than 65, and defined benefit (DB) pensions have been replaced with high-risk, employee-owned defined contribution (DC) plans, the values of which fluctuate with the stock market. With DC plans, payout during retirement is not defined or predictable, employees bear all of the market risks, and returns depend on employees’ investment skills.

Citing other studies, the researchers note that in 2013, among working households, ages 55 to 64, with a 401(k), the median amount in those accounts was $111,000. Additionally, out-of-pocket spending among older Americans with Medicare comprises about 20% of their income, and the estimated total of all non-covered medical expenses for a 65-year-old retired couple during their retirement years is $200,000.

The researchers also say that in 2001, 50.2% of households headed by someone 60 or older had some debt; by 2013, that had climbed to 61.3%. Among these older adult households with debt, the median amount they owed more than doubled from $18,385 in 2001 to $40,900 in 2013, according to a 2015 report from the National Council on Aging.

The researchers’ analysis of data from the current CBP suggest that financial struggles, namely a decline in income, was a leading reason for older Americans’ bankruptcies—almost seven out of ten respondents (69.1%) reported that they “very much” or “somewhat” agreed that this was the reason for their bankruptcy.

Additionally, 40% of respondents reported that they “very much” or “somewhat” agree that missing work for medical reasons was a reason for their bankruptcies. When the variable “missing work” is combined with “medical expenses,” 69.6% of respondents “very much” or “somewhat” agreed that this combination of reasons led to their bankruptcies.

The researchers asked those who filed bankruptcy to list the single most important thing that they or their family members were unable to afford in the year before their bankruptcies. More than half of older filers (52%) who responded indicated that the single most important thing they had to go forego was related to medical care—surgeries, doctor visits, prescriptions, dental care, and health/supplemental insurance.

“Absent significant policy changes that reassume the risks of aging and effectively insure the financial stability of older Americans, our data suggest that the trend of an aging bankruptcy population will continue,” the researchers conclude.

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