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.

More States Weigh Action to Help People Save for Retirement

By Jenni Bergal

© The Pew Charitable Trusts

July 8, 2016. — Malcolm Reid and Stewart Nelson-Reid, both 58, have been together for 18 years. They’ve had a blast — traveling, skydiving and riding roller coasters around the country.

What they haven’t done is save much money for retirement. For years Malcolm Reid, a manager at AT&T, contributed only a small amount to his 401(k). His spouse, a freelance makeup artist, has no retirement fund.

“I don’t know what we were thinking,” Reid said. “We were spending money like crazy. We traveled. We bought clothes. We ran up credit card debt. Now, we’re watching every penny.”

They aren’t alone: A recent federal report found about 55 percent of households with workers between 55 and 64 have less than $25,000 in retirement savings. Malcolm Reid has saved a bit more than that — $38,000 — but far less than what he’d need to support himself during a retirement that might last decades.

For many Americans, a major barrier to saving more is that their employers don’t offer a retirement plan. Between 2010 and 2014, 42 percent of full-time, private sector workers between 18 and 64 — about 30 million people — did not have access to an employer-sponsored plan, according to a study by the Pew Charitable Trusts (Pew also funds Stateline).

To fill the gap, since 2012 at least 31 states have considered setting up state-sponsored retirement savings plans for private sector workers, according to Pew. This year, legislators in more than a dozen states introduced bills. 

Eight states have approved state-sponsored retirement programs for private-sector workers, but so far only one, in Massachusetts, is operating. The Massachusetts treasurer handles contributions and investments for the voluntary program, which is only for small nonprofits.

Connecticut, Illinois, Maryland and Oregon have approved mandatory programs in which a small percentage would be automatically deducted from an employee’s paycheck and put in an IRA in a financial institution, although the person could opt out. 

Employers would play a minimal role, providing information about the program to workers and sending payroll deductions to the state, but not offering financial advice or assistance. None of the programs require employers to match employee contributions.

Under Maryland’s program, employers that don’t enroll their employees must pay a standard $300 filing fee. But there is no penalty for failing to participate in the program.

New Jersey and Washington state have adopted a “marketplace” model, in which the states would create an online exchange and set basic standards for eligible retirement plans.

The states would rely on the existing private market to provide the plans, as well as help educate small businesses about their options and encourage them to offer one to employees. Participation would be voluntary for small businesses and employees.

In Illinois, which hopes to launch its program in June 2017, businesses with at least 25 employees that don’t offer retirement plans would be required to participate. Employees would be enrolled unless they opt out, and 3 percent of their wages would be placed in a Roth IRA, although they could change the percentage.

“Workers who lack access to retirement savings options need and deserve help. The number of families and workers who are in trouble is just terrifying,” said Democratic state Sen. Daniel Biss, who sponsored the measure, which passed in 2014 on a party-line vote, with only one Republican voting in favor.

AARP, one of the biggest boosters of state-sponsored retirement funds, says auto-enroll programs like the one in Illinois will best help retirees become more financially secure.

“Social Security is not enough. People need that private savings,” said Gerri Madrid-Davis, AARP’s state advocacy director. The average monthly Social Security retirement benefit as of January was $1,341.

Boomers in Trouble

Baby boomers, Americans between the ages of 52 and 70, are in especially dire straits. More than four in 10 will not have enough income to support themselves when they call it quits, according to a report by the Employee Benefit Research Institute (EBRI), a nonprofit, nonpartisan think tank based in Washington, D.C.

Many companies no longer offer pensions, as they did when boomers’ parents were in the workforce. Nearly 30 percent of households age 55 and older have no money saved in a 401(k), IRA or pension.

And some boomers who did try hard to save dipped into or drained their retirement accounts to buy or repair their house or pay medical bills or college tuition; some lost jobs during the recession. 

“A tremendous number of people aren’t ready,” said Jack VanDerhei of EBRI. “It’s a serious problem.”

The AARP’s Madrid-Davis said younger Americans will benefit most from the state efforts to set up retirement savings programs because they’ll have more time to accumulate savings. 

But the programs would help boomers, too. Many are expected to work well past traditional retirement age. The Bureau of Labor Statistics projects that by 2024 nearly 22 percent of those 65 and older will be in the labor force, compared to 12 percent in 1994.

“These programs are hugely important to boomers,” Madrid-Davis said. “Most of them don’t have pensions like people used to and a good number have nothing saved for retirement.”

She said AARP prefers that states create auto-enroll programs because many employees forced to put a small percentage of their savings into a retirement account won’t bother to opt out. “It’s trying to get inertia to work in people’s favor,” she said.

And the programs would save tax dollars down the road, Madrid-Davis said.

“The states know at the end of the day, if you have a large number of retirees who don’t have the financial resources, they’ll need support with health care, housing and food that generally comes from local and state government. Ultimately, the states will be the ones footing the bill.”

An Unlevel Playing Field?

The financial services industry and some groups representing small businesses, such as the National Federation of Independent Business, have opposed much of the legislation to create mandatory auto-enroll retirement savings programs.

Many of these critics say they support efforts to educate workers about saving for retirement, but they don’t think states should force employers to offer plans. Some say it will create administrative and regulatory burdens on small businesses.

John Mangan, a regional vice president for the American Council of Life Insurers, which represents financial companies that offer 401(k)s and annuities, said employers already have access to a “vibrant market” if they want to offer retirement plans. 

“They can work and will work for employers who have the time and energy to get a plan in place,” he said.

Mangan said mandatory auto-enroll programs would create an unlevel playing field, especially if they are exempt from the federal Employment Retirement Income Security Act, which sets out strict rules and standards for private-sector employers and retirement plans and provides financial protections for workers. 

That would mean plans that are part of the state-sponsored program wouldn’t be subject to the same requirements as other employer-sponsored plans.

“We’re not afraid of fair competition. We face that every day,” Mangan said. “Our concern is that states are proposing to operate a plan under different rules than we operate our plans under.”

Mangan said his group prefers the marketplace model adopted in Washington state. 

“It’s completely voluntary for employers and taps into an existing private marketplace,” he said. “It attempts to connect private providers to small employers who need a plan and might not know where to turn.”

In California, the state Chamber of Commerce is opposed to a mandatory auto-enroll bill under consideration, unless it is amended. The measure was approved by the Senate last month and is awaiting action in an Assembly committee.

Marti Fisher, a chamber lobbyist, said her group is worried that employers won’t be protected from liability.

“A small-businessperson may inadvertently make mistakes in the way they administer their responsibilities under the plan or the way they interact with employees and then they could be liable for any losses or problems that occur,” she said.

Fisher said her group also is concerned about the program’s costs. A recent analysis estimated California would need to borrow $134 million from its general fund for a startup loan. The loan would then be repaid using a trust fund supported by employee contributions.

“We think the cost to develop the infrastructure to administer this brand spanking new program is going to be fairly large,” Fisher said. Employees may wind up being “very disappointed in their returns,” she added, because the startup and administrative costs would come out of their investment funds.

Some critics of auto-enroll programs question how much employees will be able to save, if just a small percentage of their paycheck goes into an IRA. Research has shown that a 3 percent automatic contribution would have only a modest impact on their long-term savings.

But the AARP’s Madrid-Davis said any savings is better than none, and some programs allow for an automatic hike in employee contribution rates over time, which would help nest eggs grow.

“You can really build a great state program,” Madrid-Davis said. “And if you build it, they will come.”