Inflation is the top retirement concern among pre-retirees and retirees who participated in a study sponsored by the Schaumberg, Ill.-based Society of Actuaries.
The study found that respondents are worrying about the value of their assets keeping up with inflation as well as having enough money to pay for longterm care and adequate health care and maintaining a reasonable standard of living after the loss of a spouse, all of which can be impacted by inflation. The study identifies concerns raised by preretirees and retirees about their retirement resources and offers approaches to help manage them.
Todays retirement environment is much more complex than it has been for previous generations, says Anna Rappaport, who chairs the organizations Committee on PostRetirement Needs and Risks and led the study reports 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 todays 65andolder population, average life expectancy for American men and women is 17 and 20 additional years, respectively. Nearly onethird of the women and one-fifth of the men of that age can expect to reach 90 years old. As a result, preretirees and retirees are concerned that inflation will impact the adequacy of their retirement investments and savings.
With life expectancy reaching the highest level ever, there is a real possibility that those in retirement may outlive their assets, says retirement expert Steve Vernon, president of RestofLife Communications, of Oxnard, Calif. To manage that 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.
The survey also showed that preretirees and retirees are concerned about their ability to afford longterm care.
For example, nursing home care costs can reach $70,000 or more per person per year. To manage that risk, actuarial approaches include strategies such as personal health and wellness commitments and longterm care insurance that helps pay for care.
In addition, survey respondents said they are concerned inflation will impact their ability to afford adequate medical care.
In the case of a catastrophic illness, medical costs for an over65 retired couple not covered by Medicare can be a major financial burden exceeding $1 million over their lifetimes. To manage that risk, actuarial approaches include strategies such as medical insurance and Medicare supplements.
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, the survey data show. 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, says 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 than men about the following risks: inflation, 62 percent versus 51 percent; affording longterm care, 57 percent versus 47 percent; health-care costs, 56 percent versus 45 percent; depleting savings, 52 percent versus 37 percent; and 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.
The Society of Actuaries and its Pension Section Council are spearheading whats called the Retirement 20/20 initiative, which the organization says will analyze the retirement landscape with the goal of developing in coming years a new retirement system different from traditional defined-benefit and defined-contribution plans.
Launched two years ago, the initiative is gathering the insights of more than 60 experts, including leading retirement actuaries, corporate benefits managers, attorneys, public policy advocates, and academics to come up with a new proposed system.
The Society of Actuaries is an educational, research, and professional organization dedicated to serving its 19,000 members and the public. The organizations 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.
Subscribe today to our free E-Newsletters!SUBSCRIBE