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Many consumers fly blind into retirement

Many consumers fly blind into retirement

Financial advisors are remiss in addressing people’s potential longevity.

September 12, 2016

Everyone hopes retirement brings opportunity to fly high, and that we might soar with confidence.

However, research findings this week reveal that financial concerns last through retirement, not just the years leading up to it as consumers prepare for flight.

Money explains “Why Retirement Security Remains Elusive” and how this insecurity impacts visions of retirement for many.

About 50% of boomers anticipate a lower standard of living in retirement, and two-thirds of laborers believe even if they stay on the job until age 65, savings will be inadequate, according to a Transamerica retirement survey.

Further, 83% of generation Xers think boomers “have it easy compared to their own retirement prospects.” Meanwhile, 18% of millennials say they are “very confident” about their retirement.

These insecurities lead to new retirement realities as 66% of boomers intend to work beyond age 65 “or they are already doing so.”

This might be an option for some to mitigate financial risk, but not for all. Physical inability or lack of technological skills may prevent ongoing participation in the workforce.

Those in retirement need to “Avoid Wasting Money on Costly Buys,” per an article at Investor’s Business Daily News.

Advisors coach clients to amass funds to last until age 100. “But despite the best-laid plans, some retirees repeatedly squander their funds on high-ticket items such as yachts or time-share vacation homes,” the article notes.

Other retirement risk factors include leaving inheritances and providing financial assistance. Says financial advisor Megan Gorman, “I see retirees injure their retirement goals by deciding to help finance their children’s lives. That can become a black hole for them.”

During retirement, consumers pivot from saving dollars to spending them, and the financial goal becomes managing to “support a comfortable lifestyle without the fear of running out of money,” says The Lowell Sun

“Those who are dependent upon their investments to support themselves may confront challenges that those who are still working and earning do not,” the article notes.

Some potential financial retirement risks include:

  • Longevity as consumers outlive savings and experience more active lifestyle. Portfolios must account for additional funds required;
  • Inflation can lessen buying power, especially for those on a fixed income;
  • Public-policy influences such as Social Security, Medicare, and pensions;
  • Unexpected costs surrounding housing, healthcare, special needs, and family issues; and
  • Market turns “can cause permanent danger to a portfolio.”

We cannot avoid risk, the article notes, but anticipation of future events can prove helpful.

‘Aging is not lost youth but a new stage of opportunity and strength.’ --Betty Friedan, writer

Wives Pay Price to Retire with Husbands,” notes the Center for Retirement Research at Boston College. Boomer wives want to enjoy retirement alongside their spouses, but “there can be a steep cost to leaving the labor force at a relatively young age to retire with an older husband.”

A Harvard Medical School study illustrates that women are apt to marry older men, and when women retire prematurely they “may be just approaching their peak earnings years when they retire” and lose dollars to boost Social Security payouts. Also, women who retire before age 65 are not eligible for Medicare and confront additional costs for health insurance.

When boomer women choose to work until age 70 rather than 62, Social Security “wealth” can be enhanced by an average 9%.

There are “6 Big Expenses Retirees Didn’t Save For—But Should Have,” says TheStreet. Many retirees wish they would have considered costs of taxes, fun, dental work, new cars, hearing aids, and health care.

An article at InvestmentNews more deeply examines “The Longevity Paradox” in which consumers outlive their savings.

Advisors are remiss in addressing the potential longevity of individuals based on their family history and state of health.

“There are going to be an awful lot of people whose lifestyle is going to be dramatically impacted” as funds wane.

Advisors currently speculate on average men will live to age 91 and women to age 94, which is “reasonable based on life insurance tables.”

But life expectancies tend to grow in spurts and it is unknown when the next surge will come, nor who will be most affected.

Advisors can anticipate the longevity paradox, and should suggest clients up savings, boost Social Security payouts by delaying retirement, and know healthcare will be costly. “A 55-year-old couple planning to retire at age 65 can expect total lifetime health care costs to be $463,849, including premiums and out-of-pocket costs,” the article says.

Consumers also can reconsider withdrawal strategies to retain funds. “Annuities can also be a kind of formalized withdrawal strategy.”

Also, some consumers may expect family conflict over inheritances as children may increasingly expect less when parents live longer.

‘I am not afraid of aging, but more afraid of people’s reactions to my aging.’ --Barbara Hershey, actress

Another possible resource for retirement funds is the homestead. However, consumers need to know “Reverse Mortgages Can Give Homeowners a Cash Infusion, but There Is a Downside,” notes TheStreet. Houses remain the largest asset most Americans own, and there is currently $12.5 trillion in home equity in America versus $14 trillion retirement assets.

Therefore, “it’s likely that retirees will increasingly tap their home equity to make ends meet.”

This may be advantageous. But consumers need to know that reverse mortgages lessen inheritances and come with fees. Also, “the reverse mortgage market is growing increasingly complex” with many types available.

Borrowers need to carefully choose the reverse mortgage most appropriate for their situation.

Retirement is “not a steady state,” notes U.S. News & World Report. It has phases, each requiring special consideration: Years of “go-go,” “slow-go,” and “no-go.”

Typically, retirement planning considers retirement years as constant. Spending variances are not addressed, and people inadequately assume cash flow.

“Also, life throws curve balls, like divorce and death of a spouse, which can upend even well-formed plans,” the article notes.

It is recommended consumers carefully consider issues like funding retirement rather than college, maintain saving, keep dollars in stocks even after retirement, and “strive to enter retirement with no mortgage.”

All consumers face unique variables and circumstances in retirement. Some will be able to thrive with less financial worry than others, but everyone—no matter their current situation—must be prepared to alter retirement flight paths based on prevailing winds and environmental conditions.

LORA BRAY is an information research analyst for CUNA’s economics and statistics department. Follow her on Twitter via @Bray_Lora and visit the CUNA blog, The Research Roundup: Economic Perspectives.