Data & Research March 25, 2015

Changing Attitudes Mean a Retirement Rebrand

Welcome to the new retirement. Work may not end when retirement begins, and money is not the only reason, according to a Franklin Templeton survey.
Reported by

At the same time attitudes toward retirement are shifting, Social Security, inflation and market volatility continue to challenge many Americans as they squint at an uncertain future. More than half (55%) of Americans are considering working during their retirement, according to Franklin Templeton’s 2015 Retirement Income Strategies and Expectations (RISE) survey. Nearly one-third (30%) of survey respondents ages 18 to 24 say they never plan to retire.

People’s expectations for retirement lifestyle are evolving, and many of the survey participants have accepted the idea of delaying retirement and continuing to work, some out of necessity and some by choice.

For more stories like this, sign up for the PLANADVISERdash daily newsletter.

The majority (61%) of survey respondents say that if inadequate income in retirement makes it impossible for them to retire as they had planned, they have adjusted their plans or will do so, in order to delay retirement. The youngest respondents to the survey, those ages 18 to 24, are likeliest to say they would keep working (74%)

Delaying retirement isn’t always just a matter of money. About 20% of non-retired respondents say they would most likely delay retirement because they enjoy working. However, only 28% of all adults expect working to be a primary source of income in retirement.

Among those who plan to retire, when asked what they look forward to in retirement, slightly more than one-third (36%) say “not working.” Many eagerly anticipate pursuing hobbies (46%) or learning a new skill or subject (22%).

The concept of retirement, with its concerns about savings and investments, still causes some stress: 67% of Americans experience some level of stress. Stress levels peak within 15 years of retirement, with 76% reporting stress, according to Franklin Templeton’s data.

Topping the list of retirement concerns: running out of money (27%) and health/medical issues (27%). Survey respondents ages 25 to 34 years are most worried about running out of money (36%), while older respondents ages 65 to 74 years are most concerned about health and medical issues (52%).

Stress Drivers

Respondents also seem to be stressed when they lack understanding of their income needs in retirement or fail to plan for retirement. Those who do not understand their retirement income plan are significantly likelier to feel stress and anxiety (86%) than those who do understand their plan (66%). Another driver of stress: nearly 40% of pre-retirees are not saving for retirement.

Social Security appears to be a significant driver of confusion, and several factors are to blame:

  • 39% do not know with a high degree of confidence the amount of current income Social Security will replace;
  • 22% of pre-retirees don't know when to start taking the benefit; and
  • 37% are not confident that Social Security will provide expected income in retirement.

Although delaying the age at which an individual begins receiving Social Security may result in higher benefits and increased retirement income, the majority (59%) of retirees say they took the benefit before full retirement age. Only 16% started the benefit at full retirement age, and a mere 7% of retired Americans delayed until after full retirement age.

The lack of understanding is also apparent when examining Americans’ reasons for choosing to initiate their Social Security benefit. About two in five (42%) of those who began (or expect to begin) taking Social Security before full retirement age made the decision simply on the basis of eligibility, the survey found. Only about one in five (21%) say the primary reason for taking the benefit early is needing or expecting that they will need the money.

Americans are reasonably good at estimating their expenses at retirement, but they tend to underestimate the impact of inflation later in retirement, Franklin Templeton found. Typically, people expect their retirement expenses to remain flat throughout retirement. Unfortunately, the survey points out, inflation can cause a sharp increase in expenses over even a 10- to 15-year period. For many, retirement may span a much longer time, approaching 30 to 40 years.

The Spend

When it comes to actual spending in retirement, the survey found that as retirement progresses, retirees report spending more than they did pre-retirement:

  • 28% report a spending increase one to five years into retirement;
  • 42% report an increase six to ten years in;
  • 44% spend more 11 or more years into retirement; and
  • 37% of all retired respondents report an increase in spending over pre-retirement levels.

More than one-third (36%) of non-retired respondents expect to live on an amount less than 70% of their current income, the survey found. This may sound optimistic to some, but close to half of retired respondents report (45%) that they live on less than 70% of their pre-retirement income.

Overall, a majority of survey respondents who plan to retire (93%) say they are looking forward to their retirement.
“Conventional thinking and attitudes about what it means to retire are changing,” says Michael Doshier, vice president of retirement marketing for Franklin Templeton Investments. He cites a range of ways individual investors can lessen retirement anxiety, including beginning to save and working with a financial adviser to develop a written plan.

Taking the steps to understand what income sources will be in retirement and how to match them with a realistic estimation of future expenses can help take some of the mystery and worry out of thinking about retirement, Doshier says.

The Franklin Templeton Retirement Income Strategies and Expectations (RISE) survey was conducted online between January 8 and January 22 among a sample of 2,002 adults (1,001 men and 1,001 women), 18 years of age or older.

Data & Research March 25, 2015

Better Health Leads to More Financial Security in Retirement

The loss of health is more costly to a retiree’s overall experience in retirement than the loss of wealth.
Reported by

A study by MassMutual reveals 80% of retirees in better health report having a positive experience in retirement, compared to 59% of those who are in poorer health, regardless of how many assets they own.

The study also finds that among retirees in better health, seven out of 10 (73%) say they feel financially secure, while only half (51%) who are in poorer health say the same. Further, retires in poorer health are twice as likely to feel anxious about their finances and lack a sense of purpose, and three times more likely to feel lonely, compared to their counterparts in better health.

Want the latest retirement plan adviser news and insights? Sign up for PLANADVISER newsletters.

“The message for both retirees and pre-retirees is that health has a major impact on satisfaction with life in retirement. We need to focus on our health as much as possible so we can enjoy life to the fullest extent in our later years,” says Elaine Sarsynski, executive vice president of MassMutual Retirement Services and Worksite Insurance. “While none of us can predict how healthy we will be in the future, we can help influence the outcome by making lifestyle choices that promote good health.”

Statistics show four in 10 retirees overall spend more on health care than they expected before retiring, with 43% spending more than $5,000 annually and 14% spending more than $10,000. In focus group discussions, many retirees talked about working longer to maintain their health care insurance. However, earlier research by MassMutual showed that nearly half (45%) of all retirees retired sooner than they anticipated.

Mathew Greenwald, president of Greenwald & Associates, explains that the study focused on people in the first 15 years of retirement and in many cases, serious medical issues arise after that, in older age. The research points to the fact that better health has an impact on most people’s ability to fully enjoy retirement, even in the healthiest part of their retirement years. As retirees age, many health issues will only be exacerbated, “which puts an exclamation point on the importance of wellness,” says Greenwald.

While retirees in better health are more likely to feel financially secure, enjoy retirement, feel fulfilled, and are less likely to experience negative emotions, the report also shows they are more likely to engage in activities such as travel, exercise and recreation and hobbies. Specifically, they are more likely to attend sporting and entertainment events and spend time with family and friends.

The “Health, Wealth and Happiness in Retirement” study is part of a larger research project conducted in 2014 that surveyed 905 retirees who were one to 15 years into retirement. Respondents were at least 40 years old, have at least $50,000 in savings and investments, and share a role in the household’s financial decision-making.

«