Debt and Continued Spending Can Keep Retirement from Being Anything but Golden for Boomers

Four in ten middle-income retirees must make adjustments to compensate for a significant financial shortfall in retirement

July 29, 2016 /PRNewswire/ -- A majority (53 percent) of America's non-retirees think that they will pay off their debts before retirement, however only 23 percent of retirees actually report being debt free, and 38 percent of retired Boomers have had to adjust their spending to compensate for a financial shortfall in retirement, according to a new study commissioned by Bankers Life Center for a Secure Retirement^® (CSR).

As Baby Boomers struggle to reduce their debt before retiring, 60 percent of non-retirees still spent as much or more than their household incomes in 2015.

The study—Paying for the New Retirement: Responsibilities and Challenges for Middle-Income Boomers—reveals that more than eight in ten middle-income Boomers (81 percent) currently have some debt, and among those who are retired, 77 percent still carry debt.

Six in ten (60 percent) non-retired middle-income Boomers report they are spending as much or more than their household income, making it difficult to build their retirement nest egg.

Of those who are spending more than their income, more than half (55 percent) say it is because of bills, debt, loans or other expenses. One in six (15 percent) say health or medical issues are to blame.

Between their debt burdens and continued spending, 69 percent of Boomers don't believe or don't know if they have enough money to live comfortably to age 85, which, according to the Social Security Administration, is their average life expectancy.

For many, poor retirement planning, lack of savings, and limited knowledge of financial tools and investment vehicles have compounded the problem.

"Americans tend to prepare for what they can anticipate," said Scott Goldberg, president of Bankers Life.

"Most do not anticipate the amount of debt they will carry into retirement, in addition to other unplanned expenses such as long-term care and various health related costs.  Our studies show us that few Boomers are taking the steps to plan for and overcome these hurdles."

According to the latest CSR report, many middle-income Boomers are expecting to rely on retirement income streams—such as employer pensions or Social Security—that are becoming less common or may be insufficient to sustain a lifestyle they are comfortable with. In addition, only about half (47 percent) feel they have a strong understanding of financial matters.

"The average Boomer has struggled to stay current on what financial planning options are available to them, which magnifies the weight of any financial distress they experience," Goldberg explains.

"Retirement in 2016 looks a lot different than it did just 20 years ago, and there's been a lag in planning as those preparing for retirement try to solve a financial challenge that continues to evolve."

Paying for the New Retirement surveyed 1,001 Americans age 52 to 75 that have an annual household income between $25,000 and $100,000 and less than $1 million in investable assets. The study shed light on the following gaps in retirement planning:

• Only three in ten retired middle-income Boomers (28 percent) say they were financially prepared when they retired.
• Although three-quarters (78 percent) of non-retired middle-income Boomers say that they will wait to age 65 to start collecting Social Security benefits, in reality, only about four in ten (38 percent) do. This is despite the fact that delaying one's benefits can lead to increased monthly benefit amounts—approximately an 8% increase for every year one waits up to age 70.
• Only half are confident in their understanding of annuities (51 percent) and Roth IRAs (48 percent).
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The survey also revealed that most middle-income Boomers are concerned about what they largely cannot control, including decisions made by the federal government regarding budgets and spending.

Meanwhile, few are taking proactive steps to address the things they can control. Only 9 percent of those surveyed say they were very prepared for retirement, but 39 percent have not taken any active retirement planning steps.

"It is never too late to improve the outlook for your retirement financial security," Goldberg says.

"Beginning to pay down debt and developing an action plan are critical first steps toward a secure retirement. A financial professional can help you understand the range of tools available and create an informed plan toward your retirement goals." 

About the Center for a Secure Retirement
The Center for a Secure Retirement is the Bankers Life's research and consumer education program. The Center's studies and consumer awareness campaigns provide insight and practical advice to help everyday Americans achieve financial security in retirement.

About Bankers Life
Bankers Life focuses on the insurance needs of middle-income Americans who are near or in retirement. The Bankers Life brand is a part of CNO Financial Group, Inc. (NYSE: CNO), whose companies provide insurance solutions that help protect the health and retirement needs of working Americans and retirees. There are more than 5,000 Bankers Life insurance agents at over 300 offices across the country. To learn more, visit BankersLife.com.

Research Examines Retirement Risk, Role of Annuities

A new research brief finds that pension plans have effectively managed key retirement security risks and that shifting to annuities would be a more expensive approach.

Public Pensions Manage Risks with Varied and Effective Strategies

Annuities Provide Lifelong Income to Retirees But Transferring Longevity Risk to Insurance Companies Has High Cost with Fewer Consumer Protections

WASHINGTON, D.C., September 1, 2015 – A new research brief finds that most public defined benefit (DB) pension plans have effectively managed key retirement security risks – investment, adequacy, longevity and inflation risks. 

The research also finds that a shift to funding retirement benefits from public pensions to fixed annuities would be a more expensive approach – with 57 to 175 percent higher costs. The public workforce also could face diminished consumer protections if their benefits were provided as annuities.

These findings are explained in a new Issue Brief from the National Institute on Retirement Security, Retirement Security Risks: What Role Can Annuities Play in Reducing Security Risks in Public Pension Plans? is available here.

“This research is particularly important as policymakers closely examine risks and the most cost-effective ways to provide retirement benefits for the public workforce,” said Diane Oakley, NIRS executive director. 

“For states interested in limiting their retirement costs for the public workforce, the research makes it clear that turning to annuities likely will increase costs,” Oakley explained.

During the last decade, managing investment risk has posed challenges while life expectancies have also increased. Yet, the research indicates that most public DB pension have successfully managed investment, adequacy, longevity and inflation risks appropriately as described below:

• Investment Risk: Public pension plans have demonstrated their ability to invest retirement assets and achieve target returns over their long time horizons. Pensions take advantage of the risk premium generated by equity investments in their diversified fund portfolios over time.
• Adequacy Risk: The fundamental principle underlying the appropriate and sustainable funding of retirement benefits is ensuring that sponsors pay the actuarial determined contribution (ADC). While a few states have failed to adequately pay their ADC, most states have paid 95 percent or more of the ADC.
• Longevity Risk: DB pensions protect retirees from out living their savings even thought retirees are living longer. Advised by professional actuaries, public pensions appear to anticipate changes in mortality experience successfully.
• Inflation Risk: Over time, the purchasing power of a fixed income stream diminishes even at low rates of inflation. Cost of living adjustments (COLAs) protect the purchasing power of retirees. State retirement systems manage inflation risk with limits on COLAs and using investment strategies designed to produce real rates of return.

In the private sector, fewer DB pensions are available to employees, and the trend has been to switch to defined contribution (DC) accounts. 

This shift places more responsibility and risks on individuals. As such, there has been an increased focused on the role of annuities in the retirement security equation. 

Annuities are products offered by insurance companies whereby an individual or a retirement plan pays money up front to the insurance company. The insurance company makes regular payments to retirees for the remainder of their lives or for a set number of years.

In the public sector, DB pensions remain the predominant retirement plan to help to attract and retain employees while enabling employees to retire with a monthly income. 

The research brief finds that if DB pension benefits were paid as fixed annuities, this approach would be more costly, and the public workforce also would face diminished consumer protections. 

With regard to annuities, this NIRS Issue Brief finds that:

• Annuities cost more than current DB pension benefits. Because fixed annuity products deliver investment returns related to bond investments, it costs more to generate a given level of monthly income from fixed annuities than from DB pensions. Depending the pricing of the annuity, the cost of using fixed income annuities to fund DB pension benefits can be anywhere from 57 percent to over 175 percent more than the cost under a public pension’s diversified portfolio.
• Annuities do not provide the same consumer protections as public pension benefits. Public pension benefits are protected by state constitutions, state laws, court decisions on contract law, and collective bargaining agreements, depending on the state. Annuities are protected by the financial strength of the insurance company, which is monitored by the state regulators, and are backed up by state guaranty funds.
• Longevity annuities focus on the insurance value and are less expensive than fixed income annuities. By starting annuity income payments at a much older age, individuals can capture most of the insurance value of immediate annuities, but at a fraction of the cost by using longevity annuities. Further analysis with actual participant data, would be needed to help public plans consider if longevity annuities would be a helpful tool for plans considering ways to manage longevity risk. 

The National Institute on Retirement Security is a non-profit, non-partisan organization established to contribute to informed policymaking by fostering a deep understanding of the value of retirement security to employees, employers, and the economy as a whole. 

Located in Washington, D.C., NIRS’ diverse membership includes financial services firms, employee benefit plans, trade associations, and other retirement service providers. More information is available at www.nirsonline.com . Follow NIRS on Twitter @nirsonline.

. State Financial Security Scorecards Reveal Retiree Economic Pressure

The State Financial Security Scorecards research project gauges the retirement readiness of future retirees in each of the fifty states and the District of Columbia. Retirement Outlook Troubling; California, Florida, South Carolina Rank Lowest While Wyoming, Alaska, Minnesota Rank Highest Webinar to Review Findings from Thursday, July 30, 2015, Webinar. Watch a replay of the Webinar here. September 1, 2015– A new analysis indicates that Americans in nearly every state will fall far short in meeting their economic needs in retirement.  The State Financial Security Scorecards research project gauges the retirement readiness of future retirees in each of the fifty states and the District of Columbia in three key areas: anticipated retirement income; major retirement costs like housing and healthcare; and labor market conditions for older workers. The research finds that the lowest ranking states include: ·         California due to low potential retirement income, low workplace retirement plan access and high retiree costs. ·         Florida due to high retiree costs, low wages for older workers and low workplace retirement plan access. ·         South Carolina due to low potential retirement income and low labor market scores. The highest-ranking states include Wyoming, Alaska, Minnesota andNorth Dakota due to their relatively strong labor markets and lower retiree costs. However, each of these states with a favorable outlook is weak in terms of potential retirement income for retirees.  For example, North Dakotans have an average defined contribution retirement account balance of only $27,700 – nowhere near the level of accumulated savings required to ensure self-sufficiency through retirement. An interactive map with access to the State Financial Security Scorecards is available here.  These state scorecards are designed to serve as a tool for policymakers to identify areas of focus for state-based policy interventions that will strengthen Americans’ ability to financially prepare for retirement. The State Financial Security Scorecard project provides a two-page summary of the economic outlook for retirement security in every state.  It considers trends in retirement plan participation rates in each state, evaluates average savings levels in individual retirement accounts in relation to median income and considers current poverty levels in each state. “We developed the State Financial Security Scorecards to dig deep and really understand the root causes of why future retirees will struggle in some states,” said Diane Oakley, NIRS executive director.  “Now, policymakers have a tool to identify the most urgent priorities and can take action to head off the looming retirement crisis in their states,” Oakley said. “The retirement savings shortfall has become increasingly important at the state level because policymakers know it can have a deep impact on strained state budgets.  The largest source of retirement income for most Americans is Social Security, but this critical federal program typically provides only a part of the income working families need to be self-sufficient.  State programs must fill the gap and help Americans meet their most basic needs for food, shelter and medicine.  The good news is that some states like California and Illinois already have enacted legislation to reduce future retiree poverty by encouraging workers to save today,” Oakley added. “Out of crisis comes opportunity. States now are trying different ways to make sure that middle class workers don’t fall into poverty once they stop working, which harms individuals and their families,” said Kathleen Kennedy Townsend, Georgetown University Center on Retirement Initiatives founder and former Maryland lieutenant governor.   “This new tool can help policymakers get a better read on financial security issues in their state, and enact sensible policies to help Americans get back on track when it comes to preparing for retirement,” she explained. “This research project makes it abundantly clear that achieving financial security in retirement is an increasingly elusive goal for Americans,” saidHank Kim, executive director and counsel with the National Conference on Public Employee Retirement Systems.  “The findings give policymakers yet another reason to explore innovative approaches, such as the Secure Choice Pension, which draws on the documented performance and efficiencies of public sector pension management, and extends it to those in the private sector,” Kim said. The State Financial Security Scorecards come on the heels of the NIRS 2015 public opinion research revealing that an overwhelming majority of Americans (86 percent) believe that the nation faces a retirement crisis.  Americans strongly support state action to address retirement insecurity the research found: 71 percent said state sponsored retirement plans are a good idea and 75 percent of Americans said they would participate. This State Financial Security Scorecard project was conducted by Diane Oakley, NIRS executive director with support from AARP.  The State Financial Security Scorecards build upon a 2014 research report, The Financial Security Scorecard, authored by NIRS and Dr. Christian E. Weller with the University of Massachusetts Boston. The National Institute on Retirement Security is a non-profit, non-partisan organization established to contribute to informed policymaking by fostering a deep understanding of the value of retirement security to employees, employers, and the economy as a whole.  Located in Washington, D.C., NIRS’ diverse membership includes financial services firms, employee benefit plans, trade associations, and other retirement service providers. More information is available at www.nirsonline. Follow NIRS on Twitter @nirsonline.