Nearly half (48 percent) of Americans ages 45-70 have no financial plans in place to protect themselves against outliving their assets and the rising cost of health care should they live longer than they expect, according to a survey by the Society of Actuaries (SOA).
Additional findings show that more than one-third are worried about running out of money during retirement, but only 20 percent plan to purchase an annuity or other form of guaranteed lifetime income to protect their assets.
"It's apparent that Americans, specifically the baby boomer generation, have not saved enough money for retirement," said Anna Rappaport, president of Anna Rappaport Consulting and a past SOA president. "With the challenges in the housing and financial markets over the past few years, coupled with the fact that people are living longer, many baby boomers are finding themselves unprepared to maintain their lifestyle in retirement."
"As actuaries," Rappaport continued, "we cannot stress enough the importance of having a plan in place that addresses all of the risks individuals may face in retirement, such as spending available assets too soon, meeting financial care needs, paying for the rising cost of health care and adjusting financially and otherwise to the loss of a spouse."
Frayed Safety Nets
The survey found that nearly three-quarters (71 percent) of respondents plan to claim Social Security before the age of 70. However, actuaries emphasize the importance of claiming Social Security as late in life as possible to help secure more guaranteed lifetime income in retirement and to help hedge against the risk of outliving assets.
Looking at other actions Americans take to protect themselves and hedge against potential future risks, the SOA survey found that 75 percent of Americans ages 45-70 protect their tangible assets, such as housing, through home or renter's insurance; however, only 19 percent plan to insure the extra costs of disability and well-being by purchasing long-term care insurance.
"While long-term care insurance may be a complex and somewhat costly product, it can act as a financial safety net should people need extensive care in their old age," says Dawn Helwig, consulting actuary for Milliman Inc. "Purchasing a long-term care policy or combination product can help mitigate the potential risk of having to pay out-of-pocket for unexpected health-related costs down the road."
"While living past one's expected age can mean more time with family and friends, it can also pose potential financial, physical and societal risks," says Timothy Harris, a principal at Milliman.
The SOA's survey findings were based on a nationally representative U.S. survey of 1,006 individuals, ages 45-70.
Stephen Miller is an online editor/manager for SHRM.
Study: Typical 401(k) Participant Can’t Retire Until Age 73, SHRM Online Benefits Discipline, December 2010
Longevity and Retirement: Women Need to Save More than Men, SHRM Online Benefits Disciplines, December 2010
Savings and Retiree Health, SHRM Multimedia, March 2010
SHRM Online Benefits Discipline
SHRM Online Health Care Reform Resource Page