While Americans think that they are planning for retirement, many are not prepared for the unexpected events that might interfere with their plans, according to a study by the MetLife Mature Market Institute. Such oversights might cost them, but for many it is not too late to make the necessary changes.
"Best-Case Strategies for a Flexible Retirement: The MetLife Study of Thinking About Retirement in Uncertain Times," produced in conjunction with the Scripps Gerontology Center at Miami University, classifies the various types of retirement planners and gives examples of the most successful among them—the "pre-emptive planners."
Pre-emptive planners are those who are prepared for unanticipated scenarios, such as having to retire early because of health issues or the loss of a job, and prepare for vagaries such as long-term care costs and stock market uncertainty. Unexpected expenses for health care, housing, family support or other emergencies, for instance, can be a one-time or continuing expense for six months or longer. They can cost anywhere from $6,700 to $8,300 for each occurrence.
What the Study Found
The survey was conducted in November 2010 among U.S. residents ages 50 to 70 with $50,000 or more in household income. On average, pre-retirees spent 15 hours in the prior six months gathering information or planning for retirement, and one in five spent no time on planning during that period.
Saving stood out as the most common item among survey respondents as "the one thing" they would do differently.” If able to correct mistakes, many would:
• Start saving earlier (29 percent of respondents).
• Save or invest more (12 percent).
As for the confidence about what lies ahead, the following percentages of respondents said they were:
• Very confident that they will have enough money to live comfortably if they or their spouse/partner lives to 85-plus years of age (20 percent of respondents).
• Only somewhat confident (58 percent).
• Not confident in their retirement security (22 percent).
More than two-thirds (68 percent) of those who did feel at least somewhat confident about a comfortable standard of living and a long life identified a guaranteed stream of income as a reason for their confidence, followed by 51 percent who identified sufficient savings as contributing to their confidence.
"We found that actively preparing for the surprises that inevitably come our way is the most successful approach to retirement," said Sandra Timmermann, director of the MetLife Mature Market Institute. "Ultimately, the capacity to withstand the unexpected is dependent on the ability of people to imagine, anticipate and prepare for the circumstances that are often beyond their control."
"It's not too late for those who have not retired," added Kathryn B. McGrew, associate professor at the Scripps Gerontology Center at Miami University. We conclude in this study that while there is no universal approach to retirement, it would be helpful for those who find themselves in one of the less desirable categories to work on their plans with their partners, families and/or trusted financial advisors. In general, financial planners and planning tools do a good job of taking individual values, preferences and resources into account to achieve a 'best fit'."
Ten Types of Pre-Retirees
When it comes to finances, there are 10 types of pre-retirees, the study found:
1. Snoozers who don't think about future risks. Risks are not on their radar screens.
2. Active resisters who "choose to snooze," or choose to ignore information about future risks.
3. Immobilized worriers who understand future risks but whose worry prevents them from acting.
4. Oversleepers who are late in their thinking and planning and might regard their decision or action windows as come and gone.
5. Wood knockers who think about the unexpected but rely on hope; they choose optimism. Somehow, things will work out.
6. Plan B-ers who hold on to a contingency plan, or the loose idea of one, as a protection against trouble ahead. A Plan B might be a "plan" in name only.
7. Realists who use the lessons of experience to think about the future.
8. Stewers and brewers who take a while to make decisions. Stewers might fuss and fret, while Brewers play with ideas and planning strategies.
9. Compromisers who think about today and tomorrow and balance their current needs against future risks.
10. Pre-emptive planners who strive to pre-empt risks, or at least their consequences, anticipate the unexpected, set and live by personal finance rules, gather information and take action.
Pre-emptive planners have multiple sources of retirement income and assets; the types of sources vary by such features as the presence or not of a defined benefit plan; 401(k) plans; other investments; eligibility for Social Security; annuities; and health insurance.
"We acknowledge that everyone at one time or another may have attributes from each of these different types," said MetLife's Timmermann. "While no one is perfect, it is ideal for people to at least aspire to being a planner as opposed to one who 'knocks on wood' and hopes for the best."
Stephen Miller, CEBS, is an online editor/manager for SHRM.
Despite Recovery, Boomers See Delayed Retirement, SHRM Online Benefits Discipline, February 2011
Employers Offering More Help to Meet Retirement Goals, SHRM Online Benefits Discipline, February 2011
Employees' Retirement Readiness Is Employer Priority, SHRM Online Benefits Discipline, January 2011
Americans Unprepared Against Health Care Costs in Later Life, SHRM Online Benefits Discipline, January 2011
SHRM Online Benefits Discipline