Boomers Take Note: Wealth Fades Quickly For Many Retirees

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With the first big wave of baby boomers set to retire in 6 years, many may not have accumulated enough assets to maintain a basic standard of living throughout retirement, new research from the Employee Benefit Research Institute suggests.

EBRI studied data on individuals born between 1931 through 1941, as compiled by the National Institute of Aging, Washington, and the Institute for Social Research at the University of Michigan. Individuals in the study ranged in age from 51 to 61 in 1992, at the beginning of the study period, and had reached age 61 to 71 by 2002.

On the bright side, total wealth among individuals in that group grew by 85% between 1992 and 2002.

Total wealth, referring to all of a households assets (not including their home) minus debts, grew from $235,514 among people in the study group, to about $435,000 in 2002, EBRI found.

For many individuals, however, their accumulated wealth took a bad beating over the years due to the ups and downs of the equity markets, health problems, unemployment, mismanagement of finances and other causes.

EBRI found that 9% of Americans born between 1931 and 1941 lost 100% of their accumulated wealth from 1992 to 2002, while 30% saw this wealth decline 50% or more, and 34% suffered a 25% or more drop.

Although over half of Americans aged 64 to 74 saw their wealth actually grow by 50% or better in the period, a third were either on track to lose their wealth or had already done so, EBRI reports.

EBRI found a significant relationship between declining health and declining wealth.

For instance, people who classified themselves as being in excellent to very good health had accumulated over $573,000 by 2002 on average, compared to $325,000 by those who described themselves as in fair health and only $118,000 of those in poor health.

EBRI found that among the 34% who had a decline of more than one-fourth of their wealth in the period, 36% had been hospitalized, compared to 32% who had not.

In addition, 40% in this group had spent time in a nursing home, vs. 34% who had not.

Craig Copeland, an EBRI analyst who wrote the report, thinks a need for long term care may have been a factor in the sharp decline of wealth for some. “It could be that some had to reduce their wealth to qualify for Medicaid,” he says.

EBRI found other substantial differences among various demographic classes.

Looking at ethnicity, for example, white individuals in the study group accumulated an average of $496,000 by 2002, compared to just over $114,000 among blacks and less than $119,000 among Hispanics.

Men in the studied age group had accumulated $473,000 by 2002, compared to less than $403,000 for women.

EBRI concludes that individuals about to retire may need to protect their assets by arranging for more managed withdrawals or for annuity payments, to produce a steadier drawdown of wealth in retirement.

Copeland points out accumulated wealth would have to last 30 to 40 years for many people.

“People have a good chance of living beyond 80 if theyre healthy at 65,” he says. “They need to understand how much they can take out of their funds each year; thats how much they can spend.”

EBRI notes that individuals now on the verge of retirement are the first to be affected by the shift starting in the 1980s away from defined benefit pension plans to lump-sum payments and 401(k)-type asset accumulation plans.

In future years, retirement wealth management may become even more complex if President Bushs Social Security proposals are enacted, EBRI points out.

Under the proposal to establish private retirement accounts, Social Security could become less like an annuity and more like a defined contribution plan.

“Retirees could be faced with managing even more lump-sum wealth and receiving even less lifetime annuity wealth,” EBRI concludes.


Reproduced from National Underwriter Edition, February 25, 2005. Copyright 2005 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.