New survey shows many Americans aren't saving enough for retirement

by Jim Sloan

Longer life spans and the recent collapse of the housing and financial markets have left nearly half of Americans ages 45 to 70 without enough investments to last through their retirement, a recent survey by the Society of Actuaries says.

The survey also found that nearly three-quarters of those baby boomers, many of whom became eligible to retire at the beginning of 2011, plan to claim Social Security before the age of 70. Accepting Social Security at a younger age flies in the face of actuaries' firm and long-held advice to hold off on taking those benefits as long as possible. This is advised in order to secure a more guaranteed lifetime income and to offset the risk of outliving your investments.

Advantages of waiting to receive Social Security

Although you can start receiving Social Security payments as early as 62, your payouts increase for every year you delay starting them--up to the age of 70. Actuaries advise waiting until 70 so you can be getting higher payments later in life when going back to work isn't an option.

"Many baby boomers are finding themselves unprepared to maintain their lifestyle in retirement," actuary consultant Anna Rappaport said in releasing the report in early 2011.

"As actuaries, 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."

Other things worrying retirees

Some of the other sobering findings from the SOA report:

  • 48 percent of Americans aged 45-70 have no financial plan that will continue to provide income if they outlive their savings accounts, or if their health-care costs rise sharply and eat up more of their retirement income than they planned.
  • More than a third worry about running out of money but only 20 percent plan to purchase an annuity or other form of guaranteed income.
  • Less than 20 percent plan to purchase long-term care insurance, a costly and complex product that actuaries advocate because it can be a "financial safety net" for people who might encounter high health care expenses later in life, the SOA said.

The Society of Actuaries, a research group that analyzes, measures and manages risks, has recently turned its attention to longevity risk--the term used when someone outlives their savings accounts in retirement. Here are some other tips from SOA for avoiding that:

  • Purchase an annuity: These financial products guarantee purchasers payments as long as they live. They're a great deal if you live a long time, but not so great if you die young.
  • Buy Medicare supplement insurance: This type of policy fills in the gaps in Medicare insurance and saves you from the high cost of deductibles, copays and coinsurance, all of which are climbing.
  • Long-term care insurance: Medicare pays for 100 days of nursing home care, and after that the out-of-pocket expenses can drain investments and savings accounts quickly. These policies cover the cost, and are available from private companies or the new national long-term care program created in the recent health reform legislation.

In another report released in October 2010, the SOA found that nearly two-thirds of people ages 50 to 64 don't feel they have enough in their savings accounts to handle future increases in health care costs. About 25 percent of those surveyed said they would put off retirement if health care costs continue to climb as fast as they have in recent years.

The U.S. Department of Health and Human Services estimates that health care costs will rise about 6.3 percent a year until 2019, but pre-retirees surveyed by SOA said they felt they could only manage increases of 1 to 5 percent a year.

Disclaimer:This content is not provided or commissioned by American Express. Opinions expressed here are author's alone, not those of American Express, and have not been reviewed, approved or otherwise endorsed by American Express. This site may be compensated through American Express Affiliate Program.

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