In late December, we posted an article titled, 11 Eyebrow-Raising Facts from the Secure Retirement Institute, which featured some interesting stats from the recently released fifth edition of the Institute’s Retail Retirement Reference Guide.
That story resonated well with readers, and with 161 pages of timely research and insights about the U.S. retirement income market packed into that guide, there’s more than enough for us to dish out a second helping here.
While the first article featured data taken only from Chapter 1 (“The Retirement Market”) of the five-chapter guide, here we tackle trends from Chapter 2: “Retirement Risks and Other Planning Challenges.” Subsequent chapters include “The State of Retirement,” “Advisors and Retirement Income Advice,” and “Retirement Income Products.”
Note that LIMRA members can download a copy at this link, and remember to check out our first installment here: 11 Eyebrow-Raising Facts from the Secure Retirement Institute
1. Longevity—and the length of retirements—is increasing
As of 2018, the average 65-year-old American man could expect to live another 18.1 years to 83.1, and the average 65-year-old American woman could expect to live another 20.7 years to 85.7. Approximately 1 in 5 men who are currently 65 will live to 90, and 35% of all 65-year-old women will live to 90. While the Centers for Disease Control reported that life expectancy in the U.S. actually declined in 2020 to 77.3 years thanks in large part to the COVID-19 pandemic, being underprepared for a long retirement could result in outliving one’s assets.
• SEE ALSO: A 65-Year Retirement? New Research Finds Humans Could Live to 130
2. There is a high probability one spouse (usually the woman) will outlive the other for an extended period of time
For 3 in 4 couples, one will outlive the other by at least 5 years, and for 1 in 2, one spouse will outlive the other by 10 or more years. Advisors are urged to speak with coupled clients about this likelihood, which the Secure Retirement Institute says necessitates both members securing guaranteed income for at least one member of the couple.
• SEE ALSO: How Income Solutions Help 401k Plan Participants, Sponsors, and Society
3. Inflation risk is a major threat to retirees’ portfolios
Inflation has caused Americans’ living expenses of $50,000 in 1983 to go up to $133,527 in 2021, an increase of more than 160%. In other words, the Secure Retirement Institute notes a 1983 retiree’s $100 income was worth only $37.45 in purchasing power of goods and services in 2021.
Rising inflation was cited as the “single greatest risk” to retirement plans in 2022 according to a quarter of respondents in a recent study by Allianz Life. Rising inflation in 2021 of course led to a 5.9% increase in Social Security benefits in2022—the biggest annual cost of living adjustment in 40 years. But as Mary Johnson, Social Security and Medicare policy analyst for The Senior Citizens League points out, “Over the past 21 years, COLAs have raised Social Security benefits by 55%.” But through July of 2021, “Social Security benefits have lost nearly one-third of their buying power, 32%, since 2000, about the length of a typical retirement.”
• SEE ALSO: 3 Ways to Battle the Effects of Inflation in Your 401k
4. Retiree healthcare costs continue to outpace other expenses
Medical care expenses for the elderly constituted more than 13% of their total expenditures in 2018, compared to 8% for U.S. households at large. Average out-of-pocket spending in 2019 for Medicare households (65 and older) was $6,818. Since CPI-E trending began in 1982, medical care inflation rose significantly more than inflation for most other goods and services: 4.4% annually for Medicare vs. 2.7% for all other items.
• SEE ALSO: This is How Much Retiring Couples Will Spend on Healthcare
5. Expectations regarding working in retirement are not realistic
63% of pre-retirees believe that they will work full-time, part-time, or gradually work less after retiring. In reality, only 15% of retirees are actually working in some capacity (8% part-time, 7% full-time) in retirement. A 2020 Secure Retirement Institute survey found 41% of retirees retired “on time” according to their expectations, and 54% retired earlier than planned. Just 5% retired later than planned.
Retirees who delay or work into retirement have a better chance of holding off on claiming Social Security, resulting in a maximum benefit, and are also able to accumulate larger retirement plan balances.
• SEE ALSO: Changing Retirement Realities Emerge for Workers and Retirees
Remember to check out our first installment here: 11 Eyebrow-Raising Facts from the Secure Retirement Institute