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Retirees, Pre-Retirees Slowly Regaining Confidence: SOA

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In 2011, prior to the U.S. debt downgrade and the most recent bout of market volatility, retirees and pre-retirees were less concerned with their finances than they were in 2009, the Society of Actuaries found. In a report released in September, SOA found 62% of retirees and 65% of pre-retirees were more concerned about their finances than they were five years ago, but their level of worry had “decreased significantly” since 2009.

In 2009, 25% of retirees said their financial situation was much worse after the recession. That percentage fell slightly to 23% in 2011. Among pre-retirees, the difference was more significant. Over a third of pre-retirees said in 2009 that they were much worse off after the recession, compared with 25% who said the same in 2011.

SOA’s report is based on a biennial survey conducted in July 2011 among 1,600 adults between ages 45 and 80. Half of respondents were retired and half were not.

Although SOA didn’t survey respondents again this year and won’t until 2013, Anna Rappaport, spokeswoman for the organization, suggested that the trend has continued. “Generally, people are feeling a little better about the economy,” she told AdvisorOne on Thursday.

The Conference Board, which releases monthly data on consumers’ confidence level, found the Consumer Confidence Index increased nine points in September. The Board found consumers are more optimistic about their present situation, as well as the short-term outlook for business conditions.

The report found the changes people put in place following the recession are still being maintained, but noted that retirees and pre-retirees have yet to learn how to manage risk properly.

“Economic change makes it more imperative that people do careful planning and evaluation, yet also makes it more difficult to do so,”  the report says. “Research to date does not show much change in the way that people are planning, and it does not indicate that more people are thinking longer term, hiring advisors, or attempting to do more analysis of the influences that could affect their retirement security.”

Economic changes and market volatility have highlighted the importance of planning for retirement and good money management in general. Two-thirds of pre-retirees and 52% of retirees said they needed to do a better job of minding their finances and planning for retirement. Almost three-quarters of pre-retirees said they needed to save more money, compared with half of retirees.

Pre-retirees were more likely to think they would have to work longer, the report found. Sixty-seven percent said they would have to do so, compared with just 23% of retirees who said they would have to go back to work.

Despite being largely in agreement that they need to do a better job managing their money, neither pre-retirees nor retirees were likely to say they needed more advice from a professional. Less than a third of pre-retirees and 22% of retirees said they needed more professional advice regarding saving and investing.

Anna Rappaport, Spokesperson, SOARappaport (left) noted that the July survey did not ask respondents whether they were working with an advisor, so it’s unclear if those who said they don’t need more professional help are confident with their own skills or if they have a financial professional. However, an earlier SOA survey found that the percentage of retirees with a personal financial advisor increased between 2008 and 2009, remaining steady at 61% in 2011.

Inflation is the biggest retirement concern for both groups, although health care rated a close second. Furthermore, retirees and pre-retirees grew more concerned about those risks than they were in 2009. To combat these fears, the report found, more retirees and pre-retirees are planning to secure guaranteed lifetime income, but only about a quarter have taken steps to do so.

Despite being more concerned about risk than in previous years, SOA found retirees and pre-retirees were no more likely to have used risk management strategies than they ever have been. The strategies they do adopt tend to be short-term: eliminating debt, cutting spending or going back to work.

Regardless of whether they work with an advisor, retirees and pre-retirees have “too short of a planning horizon,” Rappaport said. “The risks they are most concerned about are inflation, health and long-term care. They should be more concerned with long-term issues, running out of money.”

Another major concern for people who haven’t accumulated a large amount of assets, Rappaport said, is that to continue working, they need to “keep their skills up to date, keep their contacts up to date: They need to position themselves to be able to work longer.”

Social Security is another area retirees and pre-retirees could do a better job in planning. “The majority of people still claim too early,” Rappaport said, noting that by claiming at age 70 instead of 62, retirees could increase their benefit amount by 75%. “They give up that income in earlier years,” she acknowledged, but for some people, that higher payout later may be worth it. 


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