Many Retirees Face Prospect of Outliving Savings, Study Says

[babylonsister]

Many Retirees Face Prospect of Outliving Savings, Study Says

By Nancy Trejos
Washington Post Staff Writer
Sunday, July 13, 2008; Page F01


Nearly three out of five middle-class retirees will probably run out of money if they maintain their pre-retirement lifestyles, a new study from Ernst & Young has concluded.

The study, set to be released tomorrow, finds that Americans will have to drastically reduce their standard of living before retirement to live comfortably, or even avoid destitution, later in life. Middle-income Americans entering retirement now will have to reduce their standard of living by an average of 24 percent to minimize their chances of outliving their financial assets, the study found. Workers seven years from retirement will have to cut their spending by even more -- 37 percent.

"People are going to have to adapt in a number of ways that they weren't anticipating or hoping for," said Tom Neubig, national director of the Quantitative Economics and Statistics practice at Ernst & Young. "I think a lot of people are hoping to maintain roughly the same standard of living after retirement. Our study suggests they are going to have to make some changes."

About 77 million baby boomers are expected to retire over the next few years. The study warns of an impending national crisis if workers, and lawmakers, do not react now to the changing pension structures in corporate America. Most companies have moved away from defined-benefit plans, in which they provided their retirees with a set benefit each month, to defined-contribution plans such as 401(k)s, in which the employee takes most of the responsibility for saving money. But with the U.S. savings rate abysmally low and people underestimating their life spans, economists warn that aspiring retirees will have to work longer if they do not spend less, no small feat at a time when inflation and the cost of living are rising. Fluctuating investment returns on 401(k)-style plans in this wobbly stock market are not helping matters.

more...

http://www.washingtonpost.com/wp-dyn/content/article/2008/07/12/AR2008071200143.html

[KharmaTrain]

1. Portfolio Values Have Crashed...

I keep seeing that commercial about your "retirement number"...some goofy number these people carry around. The highest seems to be with the white guy in the suit, while the lowest was the black guy in the dew rag. They never mention what the number means, how you get there and then what.

Since January, many portfolios...especially retirement accounts have seen their value fall by 15% or more...money that not only comes off the top but the bottom as well. The retiree who had, say $500,000 in assets to generate income has seen that top figure now shrink below $400,000 and the interest from that account obvious is cranking out a lot less...and if they dare to make up the shortfall by going into the principal, things will get worse...meanwhile prices continue to rise.

The only certain thing people have to go on these days is prices will continue to rise...and money will get tighter and tighter. Thank goodness social security wasn't privitized.

[spinbaby]

2. How do they want me to reduce my standard of living?

To reduce it much further we'd have to give up such luxuries as prescription medicine and heating the house.

[OneBlueSky]

3. many retirees have no savings to begin with . . . n/t

.

[Juche]

4. Do you need a pre-retirement standard of living

I am nowhere near retirement, so what I say comes with a grain of salt. However I don't understand the concept that you need the same income in retirement.

If you are making 60k in household income in your 40s or 50s, about 8k goes to the mortgage, maybe 5k to raising your kid(s) (clothes, medicine, entertainment, college savings, etc), about 4k to your 401k (assuming you are saving).

When you retire hopefully your home is paid off, the kids are self reliant and you don't need to save for a 401k or IRA. Off the bat your expenses can go down 17k a year. Combined with a reverse mortgage and you can deal with the lower income. Plus I'd assume/hope that the tax rate for the elderly is lower because alot of income comes from SS or investments.

It seems like in retirement you won't have as many taxes or as many federal withholdings; a mortgage; kids to take care of or 10% to put into your 401k. So why would you need the smae income at 70 that you needed at 50?

Of course medical costs are going to be higher.

[cap]

5. let me clue you in...

my MIL who is now 88 retired at the age of 65. As her husband was a mid-level government worker, she has 3K in income between SS and a government pension. That means she receives 36K per year for 23 years. 36K x 23 = 828K. Plus a small bit in savings currently (at one point she had $280K but that has diminished over the years due to health care costs of her husband and her son). Plus she has her house. She lives very modestly and we expect her to live another 10 years.

Who here has $828,000 in savings? There is now only 20% of the population who has a pension -- and lord knows what the state of the pension accounts are these days. Lots of people say that they will expect to keep working but they aren't accounting for the fact that old age is usually accompanied by chronic illnesses. At some point in the late 70's and 80's, a lot of people just can't work.

We will see the return of a lot of poverty in old age unless we do something about it.

[dysfunctional press]

6. communal living is going to be in many of our futures.

the ones that survive, anyway.

[trof]

7. And I'm one of them. eom

[LiberalEsto]

8. What savings?

We're up to our asses with our kids' student loan bills.

[cap]

10. oh, yeah... I forgot... the double whammy of layoffs

on top of everything... so if you were tryin' to get ahead, that little bit that you were tucking away just got toasted.

[Frustratedlady]

9. Getting these clowns out of office will improve the outlook, tremendously.

You can't plan for the future, as you don't know what the future will be. Recession, depression, prosperity? Well, I guess we can forget that last label in our lifetime. Bush has put all of our futures at risk.