In fact, according to the Risks and Process of Retirement Survey
Report, a new study from the Society of Actuaries (SOA), inflation is the top
retirement concern. According to the report, pre-retirees and retirees are worrying
about keeping the value of their assets up with inflation as well as having
enough money to pay for long-term care, paying for adequate healthcare and the
challenges of maintaining a reasonable standard of living after the loss of
a spouse -- all of which are also impacted by inflation.
The report identifies concerns raised from both pre-retirees and retirees on
their retirement resources and offers approaches to help manage them. "Today's
retirement environment is much more complex than it has been for previous generations,"
said Anna Rappaport, Fellow of the Society of Actuaries (FSA), MAAA, chair of
the Committee on Post-Retirement Needs and Risks, and leader of the report's
project oversight work group. "With generally acknowledged gaps in many
employees' retirement benefits and resources, actuaries are helping people understand
the risks associated with retirement and the importance of sound management
of their retirement funds."
Among today's 65-and-older population, average life expectancy for American
men and women is 17 and 20 years, respectively. Nearly one-third (30 percent)
of all women and almost 20 percent of men age 65 can expect to reach 90 years
old. As a result, pre-retirees and retirees are concerned that inflation will
impact the adequacy of their retirement investments and savings by significantly
contributing to their depletion. "With life expectancy reaching the highest
level ever, there is a real possibility that those in retirement may outlive
their assets," said Steve Vernon, FSA, MAAA, and president of Rest-of-Life
Communications. To manage this risk, actuarial approaches include investment
strategies to preserve principal, such as investing in annuities, joint and
survivor annuities and deferred annuities commencing at later ages, such as
75 or 80.
Long-Term Care and Healthcare Concerns Highlighted
The survey also revealed that pre-retirees and retirees are concerned about
their ability to afford long-term care. For example, nursing home care costs
may reach $70,000 or more per person per year. To manage this risk, actuarial
approaches include strategies such as personal health and wellness commitments
and long-term care insurance that helps pay for the cost of seniors with care
needs.
In addition, pre-retirees and retirees are concerned inflation will impact
their ability to afford adequate healthcare. With catastrophic illness, medical
costs for an over-65 retired couple not covered by Medicare can be a major financial
burden exceeding $1 million over their lifetime. To manage this risk, actuarial
approaches include strategies such as medical insurance and Medicare supplements.
Women's Concerns Higher Than Men's
Other findings of the study provide insight into the differences of how men
and women perceive retirement risks and are affected by them. Women are more
concerned than men that inflation will significantly impact their retirement
resources. Such concerns may be magnified for women who have experienced the
loss of a spouse. "For retirees living on a fixed income, the longer the
period of retirement, the greater the impact of inflation," said Rappaport.
"For this reason, women are more adversely affected by inflation than men
because of their longer life expectancy. Traditionally, women have been younger
than their husbands; therefore, periods of widowhood of 15 years or more are
not uncommon. For many women, the death of a spouse is accompanied by a decline
in standard of living."
Women expressed higher levels of concern versus men regarding the following
risks:
-- Inflation -- 62 percent versus 51 percent
-- Affording long-term care -- 57 percent versus 47 percent
-- Healthcare costs -- 56 percent versus 45 percent
-- Depleting savings -- 52 percent versus 37 percent
-- Staying in their home -- 44 percent versus 29 percent
To manage these risks, actuarial approaches include investment strategies to
produce income, including joint and survivor annuities and life insurance.
Re-envisioning Retirement
Actuaries are at the forefront of identifying the retirement needs, risks and
roles of all stakeholders involved in retirement including consumers and businesses.
The Society of Actuaries and its Pension Section Council is spearheading the
first-ever Retirement 20/20 initiative. Launched in 2006, Retirement 20/20 is
leveraging the insights of more than 60 experts, including leading retirement
actuaries, corporate benefits managers, attorneys, public policy advocates and
academics. Retirement 20/20 will analyze the retirement landscape with the goal
of developing a new retirement system different from traditional defined benefit
and contribution plans in the coming years.
Future Retirement Survey Reports
In ongoing efforts to identify, understand and manage the retirement risks
facing today's pre-retirees and retirees, the SOA will release a series of three
retirement survey reports on the phases of retirement, long-term care concerns
and retirement risks for women. The SOA's three survey reports are scheduled
to be released later this year.
About Actuaries
Actuaries bring a complex future into focus by applying unique insight to risk
and opportunity. Known for their comprehensive approach, actuaries enable smart,
more confident decisions.
About the Society of Actuaries
The SOA is an educational, research and professional organization dedicated
to serving the public and its 19,000 members. The SOA's vision is for actuaries
to be recognized as the leading professionals in the modeling and management
of financial risk and contingent events. The SOA's mission is to advance actuarial
knowledge and to enhance the ability of actuaries to provide expert advice and
relevant solutions for financial, business and societal problems involving uncertain
future events. To learn more, visit http://www.soa.org.
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