Are retirees content in retirement? Are pre-retirees comfortable with their prospects of what lies ahead? How do they plan to approach retirement? What accounts for the difference in perception? These and related topics were the subject of a recent online survey performed by the Society of Actuaries (SOA) of respondents ages 45 to 80. Note that these were not representative samples, so the study does not measure up to strict scientific standards.
The two groups do have some goals in common. Both plan to reduce what they spend, increase their level of savings and reduce debt, even eliminating consumer debt. But the SOA data suggest a divergence between some expectations and reality. Thirty-eight percent of the surveyed retirees retired before age 55, and another 24 percent retired between the ages 55 and 59 with a median age of retirement of 58, many likely nudged into retirement by unexpected ill health or the fallout from a weak economy.
Pre-retirees on the other hand tend to believe that they will be working longer. Nearly four in 10 believe that they will continue to work until between the ages 65 and 67. Another one in six thinks that they will never retire. In a related 2013 study performed by ING Insurance, 90 percent of retirees reported that their current lifestyle was not too dissimilar from the ideal retirement that they had envisioned. At the other extreme many of those preparing for retirement are not at all confident. ING attributed that difference in attitude and expectation to the fact that many retirees (60 percent in their survey) are receiving benefits from a defined-benefit pension plan while only 41 percent of the pre-retirees surveyed enjoyed such a benefit.
A defined-benefit pension plan instills confidence in the covered worker because it sets a retirement benefit, which usually increases as the years go by, and the employer is obligated to put in sufficient funds to achieve that goal for each worker. And that benefit is usually guaranteed for the life of the worker and often that of worker’s spouse as well. In achieving adequate funding for such a plan, the employer takes all the investment risk. If investments do not perform as expected, the employer has to make up the difference.
According to ING, the more years a worker has to retirement age, the more likely he or she is to have a defined-contribution plan. In this kind of retirement plan, seen in the form of a 401(k) plan or money-purchase pension plan, the employer’s commitment is on the front end. The employer and perhaps also the employee put into the plan a certain amount of money, and the employee’s later benefit depends upon how the fund grows by retirement and throughout retirement.
By J. Brendan Ryan, The Enquirer, December 21, 2013, Page B3