Longevity Risk and Retirement Income Planning for Middle-Income Americans

With life expectancy on the rise, more Americans than ever are reaching their 80s, 90s and beyond! And living longer has its rewards. Middle-income retirees say they are having experiences in retirement that they never imagined, such as traveling and volunteering.

Longevity risk

However, longevity also comes with risk. One primary concern for middle-income retirees is longevity risk and retirement income planning. For someone who retires at age 65, it isn’t a far-fetched possibility he or she will need 20+ years of retirement income. The ability to create a sustainable retirement income that can last that long can be challenging, which is why many Baby Boomers fear outliving retirement savings.

What about health care?

Many Baby Boomers who are facing retirement anxiety also cite declining health as another longevity-related concern. Besides wanting to live a healthy, enjoyable retirement, the rising costs of health care also cause Baby Boomers pause. Even with Medicare, retirees can still pay significant out-of-pocket health care costs, such as deductibles, coinsurance, copayments, outpatient services and more. In fact, the average American couple retiring today at age 65 will need $280,000 to cover health care and medical costs in retirement!*

Why should retirees not rely entirely on Social Security benefits?

Unfortunately, many Americans are unprepared for retirement, with not enough savings and no plan for paying for their health care. Many Americans plan on relying on Social Security to fund their retirement years, but it isn’t advised. What are two reasons not to rely on Social Security?

  1. Because the program isn’t designed to replace your income.
  2. Because benefits aren’t enough to cover average living expenses for retirees.

Our report, Longevity Risk and Reward for Middle-Income Americans, looks at retirement age and longevity, as well as longevity risk and retirement income planning. It also delves into the future of Social Security and the role Social Security plays as the cornerstone of retirement income. We hope this report helps future generations plan well for their retirement years!

*Time, Here’s How Much the Average Couple Will Spend on Health Care Costs in Retirement, http://time.com/money/5246882/heres-how-much-the-average-couple-will-spend-on-health-care-costs-in-retirement/, April 19, 2018.

Key Findings

Despite the fact that retirement age and longevity are essential to consider for any retirement plan, more than eight in ten (87%) middle-income Americans age 55 and older do not spend much time thinking about longevity.

Longevity is not a topic of discussion for most middle-income Americans, with only half talking about it with a doctor (50%) or spouse (49%) and only one-fifth (21%) discussing life expectancy with a professional advisor.

Middle-income Americans think they will live to age 86, irrespective of gender, income or health.

Wisdom comes with turning age 56, but “old age” does not really start until age 78, according to middle-income retirees and pre-retirees.

Two-thirds of middle-income Americans feel that their life expectancy is out of their control, saying that genetics (65%) is the determining factor in how long they will live as compared to their own actions, such as eating right (46%), exercising (44%) or smoking (37%).

Declining health is the number one longevity concern for middle-income Americans, nearly four times the concern over inadequate retirement savings or outliving retirement savings.

To compensate for the possibility of outliving retirement savings, nearly two-thirds (63%) of middle-income Americans plan to reduce their own spending in order to deal with shortfalls in retirement income and resources. Two-fifths (41%) would get a part-time job and one-quarter (25%) would sell their home.

Seven out of ten (70%) middle-income Americans age 55 and older report living comfortably within their budget. One in ten (9%) admit to living beyond their means.

When developing a retirement savings goal, only one-fifth (21%) of middle-income retirees and pre-retirees calculated a monthly retirement income goal number; only one in ten (13%) determined a total savings goal number to reach.

Many pre-retirees are dealing with retirement anxiety. Nearly two-thirds (62%) of middle-income pre-retirees report some level of anxiety about retirement; one in four (28%) report being “anxious” or “very anxious.”

Nearly three-fourths (72%) of middle-income Americans say that Social Security benefits make up at least half or more of their retirement income, which exceeds the national average of 65%, according to the Social Security Administration.

Here’s a startling statistic on how many people rely on Social Security: Nearly one out of three (29%) count on Social Security for 75% or more of their retirement income.

For retirees with household incomes between $25,000 and $50,000, one in ten (10%) rely on Social Security for all of their retirement income.

One in three (34%) of those age 55 and older do not understand that delaying when they start to collect Social Security can increase their future benefit amount.

Many middle-income Americans have difficulty understanding Social Security. Nearly half (47%) of middle-income Americans age 55 and older incorrectly believe that an annual cost-of-living increase to their Social Security benefits is guaranteed.

More than one-third (36%) of middle-income Americans falsely believe that full Social Security benefits start with their 65th birthday.

One in three (35%) middle-income Americans age 55 and older who are not yet receiving Social Security do not know what their Social Security income will be when they retire.

Nearly eight in ten (78%) middle-income Americans age 55 and older are concerned about the future of Social Security.

There is much uncertainty when it comes to the Social Security future outlook. More than one-third (38%) of middle-income Americans over age 55 do not believe Social Security as we know it will exist in 20 years.

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