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LIMRA: Are Pre-Retirees Like the Grasshopper or the Ant?

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The long, hot days of summer are a good time to review one popular Aesop Fable, especially in the context of retirement planning. Much like the fable "The Grasshopper and the Ant," a new LIMRA research report notes pre-retirees fall into two categories: those that have diligently prepared and saved for retirement (the ant) and those who have not (the grasshopper). The study finds that less than half of pre-retirees (aged 55-70) have adequately saved for retirement and, like the grasshopper, are likely to suffer the consequences in retirement–the "winter" of their lives.

According to the report, "Scaling the Pre-Retiree Market," the majority of the 30 million pre-retirees is woefully unprepared for retirement, so much so that it might change the essence of retirement. Consider the following:

  • Just 30% of pre-retirees believe they are very prepared for retirement.
  • Fifty-five percent have less than $100,000 in household investable assets.
  • Participation rate for employer-based retirement plans is less than half for pre-retirees (55-64) in the private-sector workers. Overall, participation rate for full-time pre-retirees is 63%.
  • While almost a third of pre-retirees say they have no plans of retiring, in a separate 2009 LIMRA study, 56% of retirees retired before they expected; 43% were involuntary. So the option may not be theirs.
  • On average, pre-retirees across all household income levels have failed to save enough for retirement with 91% having lower-than-recommended asset-salary ratios. The average pre-retiree retiring within the next five years on has 43% of recommended savings in his or her current employer's retirement savings plan.
  • There is a consensus among pre-retirees that they will need 65-70% of current income in retirement. Only 43% of pre-retirees are confident that they will be able to achieve their desired retirement lifestyle (younger women and lower-income pre-retirees are less confident).

Yet, unlike the unprepared grasshopper, there is an opportunity for pre-retirees to improve their position in retirement through "catch-up" contributions and comprehensive financial planning. LIMRA studies find that six in 10 pre-retirees have household incomes that exceed $50,000, with a median net worth of almost $250,000. Financial services companies should take note that this population controls $16 trillion in net worth, which will grow over the next 15 years.

Pre-retirees face many significant risks that could put their retirement plans in jeopardy. Addressing the risks of longevity, health care costs, debt, investment fluctuation, disability and changes in marital status or employment are critical for developing a realistic retirement plan. Unfortunately, pre-retirees lack the education or know-how to tackle these issues on their own.

For example, LIMRA found that pre-retirees are more experienced with and therefore more accepting of accumulation-oriented products, like CDs, mutual funds and treasury bonds. For many pre-retirees, these products alone won't address the risks they will face in retirement.

The need is great, according to the organization. Financial advisors and the companies they represent have an opportunity to prevent a whole generation from undergoing the pain and suffering of the grasshopper.

Read a story about LIMRA's study on African Americans and life insurance from the archives of