Retirement is looming for the “transition boomers”—those ages 55 to 65—but a third of them are unsure how much they will need to cover their basic living expenses, according to the Transition Boomers and Retirement Income Survey from Allianz Life Insurance Co.
The survey also found that one-quarter appear to be uninformed about the effects of inflation and more than 40% may not have a realistic idea of when to start planning.
“It’s alarming that so many boomers on the cusp of retirement are still unclear about the basic factors which determine their ability to fund their lifestyle once they stop working,” Allianz Life President and CEO Walter White said in a statement. “When you consider rising health care costs and the devastating effects of inflation on purchasing power, the fact that so many transition boomers are still confused about retirement income planning is a significant issue which urgently demands more education. Allianz Life developed a new planning framework, the Four C’s of Successful Retirement Income Strategies, specifically to help boomers tackle these challenges.”
Of the one-third of transition boomers who indicated uncertainty about their retirement income needs, 64% were ages 55 to 60 and more than one-third (36%) were between 61 and 65. When asked about their biggest concerns in retirement, 28% of transition boomers cited “not being able to cover basic living expenses.”
While health care costs ranked as the biggest retirement concern at 32%, only 10% of respondents picked keeping up with inflation and only 6% called taxes in retirement as a top concern.
To illustrate the threat inflation poses to retirees, respondents were asked to predict the cost of a loaf of bread in 2022 (based on today’s average price of $2.50). While 75% predicted the cost would double to $5 in 10 years, 25% showed unfamiliarity with inflation and the effect it can have on purchasing power in retirement.
Asked about expected sources of income in retirement, the majority of transition boomers (94%) said they expect Social Security to play a role in their retirement income, followed by pension plans (46%), defined contribution plans such as 401(k)/403/457 plans (43%) and “other investments” (30%). However, 30% indicated they expect some retirement income from part-time work and 20% anticipate income from either an inheritance (9%) or “other sources” (11%).
“Although many boomers say they’ll work in retirement, studies show that many may have difficulty doing so due to layoffs, health issues or the need to care for other family members,” said Allianz Life Vice President of Consumer Insights Katie Libbe. “When only 14% say they can count on guaranteed income from an annuity and 20 percent expect an inheritance or income from ‘other sources,’ it’s crucial for transition boomers to start thinking and talking about retirement income issues as soon as possible.” Many transition boomers may not start planning far enough ahead to be able to make strategic choices about retirement income, Libbe said. According to the survey, 43% say they will not focus on retirement income strategies until they are less than five years from the start of retirement, with 16% waiting until six months to one year prior.
There are bright spots to the survey results. Of the 43% of respondents that indicated they will use income from a defined contribution savings account (e.g. a 401(k), 403(b) or 457 plan), the majority (57%) said they have spoken to someone about what to do with that money once they retire. Of those, nearly three-quarters (71%) said the conversation was with a financial professional (advisor, attorney, etc.).
The Four C’s of retirement planning will be discussed at the Retirement Income Symposium in Boston, Oct. 4 – 5, 2012.
Read The Four C’s of Retirement at AdvisorOne.