Data and Research October 11, 2016

Retirement Savers Should Plan for 'Financial Shocks' in Retirement

Nearly three-quarters of retirees surveyed experienced at least one financial shock.
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Nearly three-quarters (72%) of retirees experienced at least one financial shock, and for one-third of them, it depleted their savings by 25%, according to the Society of Actuaries’ (SOA) 2015 Risks and Processes of Retirement Survey.

Twenty percent of pre-retirees and 30% of retirees said that if an emergency were to arise, they could spend up to $25,000 without jeopardizing their retirement security. However, 20% of both groups said they could only spend less than $1,000 on an emergency without putting a serious dent in their savings.

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Fifty-six percent of pre-retirees said the debt they carry has either somewhat or greatly limited the amount they can save for retirement. By contrast, 56% of retirees said their debt has little or no impact on their lifestyle.

The survey also found that pre-retirees are more worried about expenses than retirees. Sixty-nine percent are worried about paying for long-term care, compared with 52% of retirees. Other concerns include: health care costs (67% versus 47%), maintaining a reasonable standard of living (63% versus 45%), running out of savings (62% versus 43%) and inflation (76% versus 66%).

Pre-retirees expect to live to age 85, but the latest SOA mortality data finds that a 65-year-old male will live to age 86.6, while a 65-year-old female will reach age 88.8. Nonetheless, 55% of pre-retirees and retirees do not expect to live that long.

NEXT: Spending in retirement

Sixty percent of pre-retirees expect their spending to decline as they age in retirement. This is consistent with what retirees experience, according to SOA. Only 38% of retirees said expenses in retirement were higher than they expected.

To reduce costs in retirement, 90% of retirees are spending less on purchases, 70% are dining out less frequently, 56% are traveling less, 44% are cutting back on gifts and charitable giving, 17% moved to less expensive housing, and 11% refinanced their mortgage.

Half of both pre-retirees and retirees have not consulted with a financial adviser. Only 15% of pre-retirees and 20% of retirees consult with an adviser at least once a year.

“The developing situation with regard to retirement resources, such as Baby Boomers entering retirement ages and the decline in defined benefit (DB) plans, means that many older Americans will be faced with difficult spending and debt management challenges,” says Carol Bogosian, a member of the SOA’s Committee on Post-Retirement Needs and Risks. “The actuarial profession in particular will be called on to revisit strategies and help systems adapt, as will other specialties that focus on the lives and issues of American pre-retirees and retirees.”

Matthew Greenwald & Associates conducted the online survey for SOA, reaching 2,000 Americans between the ages of 45 and 80, half of whom were pre-retirees and half of whom were retired. In addition, SOA conducted 12 focus groups and 15 interviews. The full report can be downloaded here.

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