New Retirement Realities and Longer Life Expectancy Cause Many to Rethink Their Planning Approach
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New Retirement Realities and Longer Life Expectancy Cause Many to Rethink Their Planning Approach
Feb. 22, 2012 — Average life expectancy has risen dramatically during the past century. The U.S. Census Bureau estimates that the number of centenarians, people who live to be 100, rose from 2,300 in 1950 to nearly 80,000 in 2010, and will exceed 600,000 by 2050. And according to the Society of Actuaries, a 65-year-old couple now has a 31% chance of at least one spouse living past the age of 95.
According to findings from the latest Merrill Lynch Affluent Insights Survey, the majority of affluent Americans (58%) have a positive view of the prospect of living to be 100. However, three out of four (75%) would approach their money management differently if they knew today that they were going to live that long. To financially accommodate a longer life, they would:
Continue to work at least part-time during retirement (39%).
Work with their financial advisor to reevaluate their savings and investment strategies (37%).
Invest in a lifetime income product, such as an annuity (32%).
Contribute more to a 401(k), IRA or other retirement savings vehicle (32%).
Purchase long-term care insurance (29%).
Retire closer to age 85 than 65 (25%).
This Merrill Lynch survey, which began in 2009 to examine the goals, values and financial concerns of affluent Americans, also finds that, when it comes to retirement, age is far less of a factor today. In fact, only 14% of respondents over the age of 50 cite "hitting a certain age" as the factor that would most lead them to retire. Instead, two factors more likely to lead them to retire include feeling confident that their assets will grant them the lifestyle they want throughout their remaining years (25%), and a possible health condition (18%) – their own or that of a family member.
"We hear from our clients that retiring isn’t about their age or a magic number, but rather an ongoing assessment of the lifestyle, goals and assets they desire for their later years," said Andy Sieg, head of global wealth and retirement solutions for Bank of America Merrill Lynch. "And most don't view this life stage as a straight stretch of highway so much as a winding road that requires close attention and frequent course corrections."
Expecting to live considerably longer than their grandparents' generation, affluent Americans find themselves in uncharted territory. Many are uncertain about how to adequately save for retirement and how to turn assets into sustainable income once retired, with more than half (55%) concerned about being able to afford the lifestyle they want in retirement.
Affluent Prefer Delayed Retirement Over Trade-Offs to Their Current Lifestyle
If given the choice, half of affluent Americans (51%) not yet retired would rather retire later than make trade-offs to their current lifestyle. However, when trade-offs are needed to help ensure their assets sustain them throughout retirement, 81% would make them, including a combination of:
Trimming day-to-day expenses (38%).
Purchasing fewer personal luxuries (35%).
Limiting budgets for vacations (32%).
Keeping the same car longer (27%).
Leaving less of an inheritance (25%).
Downsizing their home (24%).
Among those preparing to retire in the next five years, many are taking additional steps to ensure their assets last throughout their lifetime, including saving more (39%), developing a plan for monthly expenses and other financial needs once retired (36%), consolidating assets with fewer financial institutions (20%), clipping more coupons (19%) and providing less financial support to their adult-age children (15%).
Longevity and the desire to work later in life, because they have to or want to, is redefining the meaning of retirement. The survey found that only one out of four (24%) define retirement as never working again. The reality is that three out of four (73%) respondents not yet retired view this life stage as a second act during which they intend to work part- or full-time. Among this group, 30% plans to cycle between work and leisure after reaching the point previously thought of as retirement.
Rising Cost of Health Care Tops List of Financial Concerns, But Few Have a Plan
For the third year in a row, survey respondents cite rising health-care costs as their top financial concern (79%). One-third of respondents went so far as to say that they are more concerned about the financial strain associated with a significant health situation, such as a chronic illness or disability, than they are about how it may compromise their quality of life. Despite these concerns, 62% of respondents over the age of 50 have not yet estimated what their health-care costs may amount to during retirement.
Survey respondents believe future health-care costs (26%) and life expectancy (25%) to be the most difficult unknowns when planning for future financial needs.
