A Retirement Income Flexibility study commissioned by Golden Retirement Resources, Inc., creator of RetireMentor®, an integrated retirement income planning and management system, found that 64 percent of Americans are trapped by retirement plans that don't allow them to make adequate adjustments to their investments in response to market pressures or life changes. This problem points to a dramatic shortage of retirement income strategies and solutions that will help baby boomers and other pre-retirees adequately prepare for their later years and protect them from events that could devastate their retirements.
During the past five years, 83 percent of Americans 50 and older surveyed experienced a reduction in their ability to generate sufficient retirement income due to outside pressures such as cost of living increases, decreasing value of their investment portfolio or falling interest rates. 51% were impacted by a reduction in portfolio values and 47% indicated that they were impacted by a fall in interest rates.
Of those who are already retired or partially retired, 83 percent have had a personal event, such as declining health, illness or job loss that impacted their income needs in retirement.
The study also revealed that 37 percent of those surveyed are afraid of running out of money due to personal or market changes, and 34% have had to restrict their spending "severely."
"Our research allows pre-retirees to take a look into their potential futures and see what challenges they will soon be up against," said Jerry Golden, president and CEO of Golden Retirement Resources. "Unfortunately, for most Americans, the right plan, one that will provide the flexibility to adjust to market downturns or long term illness, doesn't exist."
Not surprisingly, nearly one fifth (18 percent) felt that the help they received from their advisor for retirement planning was fair or poor, and another 44% either had no advisor or the advisor was "no longer around."
Current Retirees Are Struggling
The Retirement Income Flexibility study also showed that of those surveyed over age 50 who were retired or partially retired:
- 50% have had to spend more of their own money on healthcare or home care than they anticipated
- 36% have had declining health or an illness that affected their retirement income
- 29% have experienced a reduced standard of living
Statistics show that the millions of baby boomers about to retire are almost completely unprepared for a long retirement and the lifestyle changes and income demands that may accompany it. For example, the AARP estimates that 46 percent of people over 65 will live in nursing homes for some time during the next 20 years, costing them as much as $100,000 per year.
Lower Income Americans Are Most Restricted
The Retirement Income Flexibility study also pointed to the fact that the lower the household income, the less flexibility they had to adapt to economic and life events. 45 percent of respondents with under $75,000 in household income were afraid of running out of money versus only 21% of individuals with incomes more than $75,000. And 42% of those same lower income households have had to severely restrict their spending due to economic or life changes, as compared to only 13% of those with incomes over $75,000.
"The average American needs solutions that offer a holistic retirement approach to managing retirement finances, one that goes beyond simply drawing down a lifetime's worth of savings and hoping that prolonged illness, rising costs, or a down market don't derail their planning," added Jerry Golden. "The best income plans incorporate both flexibility and consistency, and they should be available to the average investor, not only to the high net worth investor."
What to Do Now
Until the right plans are available to everyone, the investor and the advisor should review the investor's expectations, and how a plan will be able to adjust to changed circumstances. Golden Retirement Resources offers the following stop gap tips for what to do now to protect your retirement.
- Build in Flexibility - Your plan must have the ongoing ability to adjust in response to life events, market fluctuations and changing income needs, such as prolonged illness or death of a spouse. You can't put in your plan in a drawer and forget about it. As you age, life changes and market changes have too serious of an impact to be ignored.
- Use Dollar Cost Averaging - Move "out" of accumulated savings and into lifetime income, such as annuities. The last 15 years show that systematic "dollar cost averaging" out of equities and into payout annuities could have produced up to 36% more income security than common approaches being suggested today.
- Create Security that Leads to Higher Returns - Create secure income first, which produces financial peace of mind, and may permit you to invest the rest of your savings more aggressively.
- Ensure Lifetime Purchasing Power Protection -Maintaining the purchasing power of income over time is critical, and nearly impossible to achieve with conventional approaches. If possible, build cost of living (COLA) protection into your plan.
- Understand the Need for Customization - Retirees should start their retirement when it makes the most sense financially, and design a plan based on their individual needs.
Retirement Income Flexibility study conducted by Opinion Research Corporation among 961 Americans aged 50 years and older. Margin of error for the survey, conducted March 25-29, 2004, is +/- 3%.