Wanting to Work Longer Doesn’t Mean It’s Possible

Despite warnings from service providers and even current retirees, Americans still significantly overestimate the number of years they’ll be able to hang around in the workplace. 

The average American expects to spend five to seven additional years in the workplace compared with those who are currently retired, according to HSBC Group research.

Copious amounts of research show this is likely not a realistic goal, but that fact hasn’t dampened Americans’ optimism about bucking the wider trends and working well beyond the traditional retirement age, according to HSBC’s report, “Future of Retirement – Generations and Journeys.”  

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According to the analysis, 44% of American pre-retirees wish they started saving earlier. This is despite the fact that Americans already begin to save for retirement earlier and work more years than their global counterparts, HSBC finds. In fact, many working age Americans who are already saving still don’t think they are saving enough, with 33% of those currently saving saying they should have saved more already by putting aside a larger share of income.

HSBC’s report also uncovers that almost one in seven (14%) working-age people in the U.S. have still not started saving for their retirement, including 3% of those aged 60 or over.  

“American retirees rely less on their children for support (3%) compared to the global average (12%),” HSBC explains. “Instead, over half of retirees in the U.S. are using cash savings to fund retirement (56%), the third highest amount globally.  Other forms of funding include Social Security (51%), stocks (38%), mutual funds (32%) and a spouse or partner’s income (29%).” In another interesting finding, Americans are also “more inclined than retirees in other countries to depend on income earned from selling property, ranking the third highest at 10%.”

In the U.S., women remain less likely than men to have started saving for retirement, with 17% of women having not started saving for retirement at all, compared to 10% of men. On average, men began saving at the age of 29 while women waited until 34, the report shows.

NEXT: Key findings and practical steps 

The HSBC research goes on to show that nearly a quarter (22%) of pre-retirees have never received any formal advice or information about retirement, despite the fact that a strong majority (59%) of those surveyed say “financial security is one of the things I value most in life.”

As such, the research identifies four actions that people can take to help improve their financial well-being in retirement:

  • Consider all retirement expenses – Forty percent of retirees cited credit card repayments as a retirement expenditure, however, only 20% of pre-retirees expect to be repaying credit cards when they retire. When planning for retirement, make sure to list all possible retirement expenditures.
  • Start saving earlier for retirement – Plan to start saving for retirement earlier, to help build a bigger fund and allow it to grow for longer.
  • Seek advice from a professional – Eleven percent of retirees have received financial advice from only friends or family. Seek information from many sources, HSBC says, “but make sure the advice you get is professional.”
  • Expect the unexpected – Thirty-five percent of pre-retirees who are saving for retirement have either halted or struggled to save at some point. “No one can predict the future,” the research concludes, “but preparing for unforeseen events can soften the impact of unforeseen life events if they do occur.”

Additional research findings and information are here.  

Baby Boomers Need Help with Retirement Risks and Fears

From planning for health care expenses to addressing longevity and market risks, Baby Boomers are in need of help.

There are many fears and risks facing Baby Boomers approaching retirement.

A survey from the Indexed Annuity Leadership Council (IALC) shows that Americans’ in general fear outliving their income in retirement (25%), not being able to maintain their current lifestyle (23%) and health care expenses (19%). However, the survey also found, among Baby Boomers, one in four have less than $5,000 saved for retirement.

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Jim Poolman, executive director for the Des Moines, Iowa-based IALC, who is located in Bismarck, North Dakota, tells PLANADVISER one could assume those 25% who fear outliving their savings are the more educated people that have actually done retirement planning. He contends that those who are not planning don’t have that fear because they haven’t yet learned about what they are going to need.

Poolman says understanding the need to plan is step one, along with determining what income will be needed in retirement. “Starting to save is imperative,” he says. “Even for Baby Boomers it is better to start now than put it off another day.” He adds that setting a budget can help Baby Boomers with retirement planning.

Mark Browne, head of the North American channel, global Institutional and retirement marketing, at BNY Mellon Investment Management in New York City, tells PLANADVISER how much a retiree needs for bills and unexpected expenses comes down to individual needs. “Part of a broader retirement plan is to start with the end goal and work backwards to do the necessary savings and investing, and ensure a good spending plan is in place.”

John Davis, director of retirement marketing and insights at BNY Mellon Investment Management in New York City, suggested income replacement ratios are good for savers in their early years to give them an idea of how much they will need in retirement. However, as savers approach retirement, it is not a good predictor because each individual will have his own needs specific to the retirement previously imagined. He suggests this is time for Baby Boomers to be directed to a professional adviser to put a plan in place. He also notes long-term care insurance should be considered, and those employees who have a traditional pension plan will need less from their defined contribution (DC) plans.

Poolman says, if Baby Boomers have a DC retirement plan, the should save in the plan enough to get the entire company match or profit sharing contribution to maximize retirement potential. Any gaps in retirement savings needed can be addressed with a fixed-income annuity. “They can combine a well-balanced retirement portfolio, using diversified assets in the plan, with a more conservative product outside of the plan,” he says.

NEXT: Longevity and market risks

An annuity can also help with health care costs, Poolman adds. “It’s interesting our study shows only 19% of people are worried about health care expenses. They are not recognizing that people are living longer. Health care costs are going to go up because as they age, they will have more health-related issues. An annuity can help because it can provide a steady stream of income to help pay for long-term care, and some have riders to withdraw for long-term care,” he says.

“One of the bigger points we try to show employees is the likelihood of living to certain ages,” Browne says. “For a married couple at age 65, there’s a 60% chance one will live to age 90 and a 30% chance one will live to age 95.” He says education plays an important role in planning for longevity.

Davis tells PLANADVISER a retiree should plan to live at least 25 years after work ends, conservatively for at least for 30 years. He agrees that deferred annuities are a way to address longevity risk because employees will know they will have some guaranteed income if they do live into their 80s or older.

Baby Boomers also face market risk. Poolman points out that during the recession of 2008/2009, many getting ready to retire lost a significant amount of their investment portfolios, and they didn’t have enough time to completely ride out the rebound. Many worked longer. “As you get closer to retirement, it is so important to look at investments and ask if market dropped 25% how would it impact your portfolio and could you still retire,” he says.

He suggests those nearing retirement need to do an annual checkup of their investment portfolio. Doing so allows them to make adjustments. “As we get older, typically investment instruments used should become more conservative. We don’t have time to outlive market volatility.”

There may also be market downturns after a retiree begins taking withdrawals. Browne says Baby Boomers shouldn’t assume a steady market when planning for withdrawals. As individuals enter retirement, they should work with an adviser to create a broadly diversified portfolio, especially one that seeks to reduce risk in down years, he suggests. “The draw down strategy should be dynamic and flexible. People should spend more liquid investments in the bottom years and give long-term investments time to recover,” he notes.

Davis says people tend to make due, and cut back on spending when markets are down, but people who are poor won’t be able to live the retirement they imagined. “There’s a rule of thumb that’s been out since 1984 called the “4%-rule,” but that was based on markets doing the middle of what they do, and they don’t always do that. The 4%-rule may be a good place to start, but when the market does poorly, retirees will have to cut back and take out less,” he says. Davis suggests plan sponsors can educate participants about what their account balance can buy and what their account balance will translate into for monthly or yearly income.

While one of IALC’s goals is educating people about the value of annuities, even more so, its message is about getting people to take notice that they need to plan, Poolman concludes.

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