Research Project Issues State-by-State Scorecards on Economic Readiness for Retirement

The National Institute on Retirement Security (NIRS) has published an analysis which indicates that Americans in nearly every state will fall far short in meeting their economic needs in retirement. According to "The State Financial Security Scorecards" research project—which gauges the retirement readiness of future retirees in each of the 50 states and the District of Columbia in three key areas: anticipated retirement income; major retirement costs like housing and healthcare; and labor market conditions for older workers—even the highest-ranking states due to their relatively strong labor markets and lower retiree costs, hare weak in terms of potential retirement income for retirees.

According to Diane Oakley, NIRS executive director:

The retirement savings shortfall has become increasingly important at the state level because policymakers know it can have a deep impact on strained state budgets. The largest source of retirement income for most Americans is Social Security, but this critical federal program typically provides only a part of the income working families need to be self-sufficient. State programs must fill the gap and help Americans meet their most basic needs for food, shelter and medicine. The good news is that some states like California and Illinois already have enacted legislation to reduce future retiree poverty by encouraging workers to save today.

In addition to publishing the 51 scorecards, NIRS held a webinar to review the project's findings, hearing from Oakley, as well as Kathleen Kennedy Townsend, Task Force on Retirement Security for All Marylanders chair and former Maryland lieutenant governor, and Hank Kim, National Conference on Public Employee Retirement Systems executive director.

Source: National Institute on Retirement Security Press Release (July 30, 2015)

Additional sources: ThinkAdvisor "12 Weakest States for Retirement Security: NIRS" (August 11, 2015)

Survey: Workers More Optimistic about Retirement, but More Contemplating Phased Retirement

The Transamerica Center for Retirement Studies® has released the results of its annual retirement survey, which found increased optimism among workers around the world about improvements in their local economies, but also noted that many workers envision some kind of phased transition into retirement. According to "The Changing Face of Retirement—The Aegon Retirement Readiness Survey (2014)," just 32% of workers surveyed plan to immediately stop working and fully retire. In the United States, this number is just 24%, while in European nations, which which have histories of compulsory retirement, workers are more likely to plan to stop immediately: for example, , 52% in Spain and 51% in France.

Employment and government policy reforms are needed to facilitate this new approach to retirement, yet change is not catching up with worker demand: only 23 percent of workers say their employers facilitate transitioning from full-time to part-time. Even fewer U.S. workers (21 percent) indicate their workplace policies accommodate the transition. In many cases, change in labor and pension laws, as well as a change in cultural norms, are needed to facilitate implementation of a phased retirement program.

The Aegon Retirement Readiness Survey 2014 is a collaboration between the Transamerica Center for Retirement Studies and Aegon. The survey encompasses 16,000 employees and retirees in 15 countries, with separate country reports available for each of them: Brazil, Canada, China, France, Germany, Hungary, India, Japan, the Netherlands, Poland, Spain, Sweden, Turkey, the United Kingdom and the United States. These countries were selected on the basis of their distinctive pension systems, as well as their varying demographic and aging trends.

Source: Transamerica Center for Retirement Studies® News Release (May 29, 2014)

United Kingdom: Employers Failing at Supporting Older Workers at Retirement

According to a report prepared for Aviva, almost two-thirds of United Kingdom employers offer no tailored retirement support to their older workers. The "Aviva Real Retirement Report" finds that 64% of businesses don’t offer any tailored retirement support, even though 70% of employees who received support found it useful. In addition, the report finds that the number of employees deferring their state pension continues to increase.

Aviva notes that 56% of employers have spent money on providing work place benefits such as pensions, private medical insurance, and annual bonus, but that only 36% provide employees with guidance in the run-up to retirement:

This lack of guidance not only highlights a lack of commitment to employee benefits but is also likely to lead to a loss of vital skills from older employees. Almost a third (32%)* of those who qualify for the state pension are still looking to work – at least on a part-time basis – so by engaging with an employee’s retirement planning a business may be able to keep their valuable employees for longer.

Interestingly, the main focus if the 36% of employers who recognise the benefits of providing support to older employees is on enabling them to remain working for longer if they choose. "One in ten companies say they offer workers the option of part-time or flexi-time employment as they approach retirement, and 9% look at ways to extend the careers of their employees if this is what they wish to do."

Source: Aviva News Release (July 11, 2012)

Research: Investigators Report on Worker Disengagement before Retirement

A paper published by Dutch researchers following a panel study finds that, in line with the notion of the preretirement disengagement process, many older employees disengage more from work when getting closer to their planned retirement age. However, according to "Do Older Workers Develop a Short-Timer’s Attitude Prior to Retirement?" written by Marleen Damman, Kène Henkens, and Matthijs Kalmijn, career experiences of promotion and employer change slow down the disengagement process, while Declining health, in contrast, accelerates the process.

The aim of the study was to improve understanding of work disengagement in the pre-retirement period, by examining the impact of proximity to planned retirement (anticipated future) and work, educational, and health experiences (lived past) on pre-retirement work disengagement.

The transition from work to retirement is a complex long-term process. This study clearly shows that the preretirement work disengagement process already starts a couple of years before older workers retire and steadily increases when workers get closer to retirement. Also for workers who have passed their planned retirement age, relatively large increases in work disengagement were found.

Source: Social Science Research Network Abstract (December 21, 2011)

Study: Boomers Show Fear of Retirement Planning

According to a white paper issued by Financial Engines, retirees and near-retirees feel uncertain about the future, fearful of poverty, and are not confident in their investing abilities. Specifically, "Understanding the Accidental Investor: Baby Boomers on Retirement" reports on interviews with over 300 baby boomers and finds that more than half expressed some form of uncertainty in what the future may bring, nearly half had a fear of poverty in retirement and were distrustful of the motivations or qualifications of financial services and insurance firms, and more than a third said that they did not feel confident or knowledgeable when it came to making important financial decisions.

The most frequently observed behaviors seen among the participants were:

• Paralysis. Regardless of the primary emotion, the most common resulting behavior was ubiquitous across participants: to do nothing. While some were paralyzed with fear and uncertainty, others were prevented from taking action by confusion or not knowing whom to trust.
• Avoidance. When faced with fear of unpleasant or difficult news, some participants said that they preferred not to know how bad the situation was rather than face the facts. Others said that they wanted to avoid spending their 401(k) assets altogether to give them something to fall back on if something unexpected came up.
• Misplaced Trust. Given their distrust of the financial services and insurance industries and lack of confidence in their own financial knowledge, participants often turned to a friend or family member—qualified or not—for retirement advice.
Understanding the Accidental Investor | 4
• Magical Thinking. Many participants resorted to magical thinking, telling themselves that everything would work out in the end, or that they could continue working indefinitely without having to adjust their standard of living.

Sources: Financial Engines Press Release (May 23, 2011); The Baltimore Sun "Fear, distrust prevent older boomers from making retirement decisions" (May 23, 2011)

Towers Watson Reports Improvement in Older Workers' Confidence in Retirement

A survey of U.S. workers conducted by Towers Watson finds that older workers’ confidence in their ability to retire comfortably has rebounded modestly in the past year, but confidence levels remain well below those prior to the financial crisis. Specifically, 50% of workers aged 50 to 64 are very confident about having enough resources to live comfortably five years into retirement, up from 44% in March 2009, but still down from the 63% reported in 2007.

In addition, according to "Retirement Attitudes — Part I: Confidence in Retirement," fewer older workers are now concerned about reduced or eliminated benefits in their defined benefit plans or about their employer’s ability to pay some or all benefits they’ve already earned, with the percentage of older workers who are concerned that their employer will reduce the benefits they earn in the future declined from 44% in 2009 to 39% this year, while the percentage concerned their employer will eliminate benefits they earn in the future dropped from 38% to 30%.

Source: Towers Watson Press Release (September 1, 2010)

Sun Life Creates Unretirement Index: Measures Attitudes and Expectations towards Iissues Influencing Retirement

Sun Life Financial, Inc., had released its Unretirement Index to track the changing attitudes and expectations American workers have regarding retirement. It plans to release the Index multiple times each year and use it to gauge how economic, financial and societal forces are affecting working Americans, and forecast their future retirement decisions.

According to its initial release, 48% of the U.S. workforce believes it will still be working at the traditional retirement age of 67, and four of the five top reasons given were not financial in nature. Thus, for example, the most cited reason for continuing to work (83%) was "to stay mentally engaged."

"As our workforce evolves and attitudes are impacted by economic conditions and world events, the nature of retirement in America evolves as well," said Bob Salipante, President, Sun Life Financial U.S. "Traditional views on retirement are quickly evolving and more Americans are choosing to be unretired. This Index for the first time shows how changes in the economy, politics, healthcare and lifestyle are all critical factors in more and more Americans choosing to continue working during traditional retirement years."

Source: Sun Life Financial News Release (October 1, 2008)

Canada: Study Evaluates Worker Understanding of Anticipated Retirement Income

According to research published by Statistics Canada, about two-thirds of Canadian "near-retirees" anticipate that their retirement income will be adequate or more than adequate to maintain their standard of living once they have left the workforce. In addition, individuals who receive advice are more likely than others to express confidence in the adequacy of their retirement savings to maintain their standard of living in retirement.

Of the 7.2 million Canadians aged 45 to 59 in 2007, about 80% or 5.7 million were actively or recently employed and had not previously retired. Of these 5.7 million near-retirees, 71% received financial advice from at least one source, and 50% received advice from at least one source in the financial industry. However, 29% do not receive any advice.

These results come from two articles by Grant Schellenberg and Yuri Ostrovsky drawing on the results of the 2007 General Social Survey (GSS) on family, social support and retirement: "The retirement plans and expectations of older worker", which examines when individuals plan to retire, the certainty they have in their plans, and their confidence in their financial preparations, and "The retirement puzzle: Sorting the pieces", which examines the retirement advice and information they receive.

Source: Statistics Canada The Daily (September 9, 2008)

Survey: MetLife Reports that Pre-Retirees Overestimate Retirement Moneys and Underestimate Retirement Length and Needs

According to research conducted by MetLife, 69% of pre-retirees overestimate how much they can draw down from their savings, with 43% saying they believe they can withdraw 10% or more each year while still preserving their principal, even though most retirement experts suggest a withdrawal rate of no more than 4% annually. In addition, 60% underestimate life expectancy and 49% underestimate the amount of pre-retirement
income they’ll need once they retire.

These results are reported in MetLife's 2008 Retirement Income IQ Test, released five years after its MetLife’s first Retirement Income IQ Test. Sandra Timmermann, Ed.D., director of the MetLife Mature Market Institute said that “While we would have liked to have seen more dramatic increases in the scores, directionally
Americans are improving their retirement income IQs."

"Yet, there are still far too many misconceptions about retirement income issues," added Timmermann. "Most concerning is the fact that so many pre-retirees overestimate how much they can spend down from their retirement savings annually. This statistic should serve as a wake-up call for pre-retirees and advisors alike."

Source: Press Release (June 25, 2008)

Survey: Older Workers Growing More Comfortable with Change

Most working Americans aged 50 and older (65%) are becoming more comfortable with change and uncertainty as they grow older according to a survey released by SecurePath by Transamerica. Furthermore, the survey reports that 50% of these workers say they are at their best during times of change and 50% say that change is exciting. Based on employee attitudes, the survey differentiating pre-retirees and identifies four key segments based on their “change profiles”:

• Venturers: employees exhilarated by change--they have a high level of confidence about investing and retirement.
• Adapters: employees who tend to shy away from change finding it stressful but also exciting--many feel they will be in control of their retirement, are confident they will handle the transition well, and believe everything will work out.
• Anchoreds: employees who look for consistency in their lives rather than seek change--their apprehension towards change negatively affects their confidence in their retirement savings and their investing and may lead them to be less prepared for retirement.
• Pursuers: employees who prefer change and find it exciting, but don’t always feel they handle it well--as a group, they are the most likely to say they will continue working instead of retiring. Their desire for change coupled with their lack of confidence leaves them open to retirement planning ideas but also with a need for reassurance in order to execute.

Among other fndings, the study suggests they are not only comfortable with the uncertainty; they also may be more realistic than commonly thought about their next life stage. In this regard, it finds that 68% plan to be working in some capacity as they age.

Source: SecurePath by Transamerica Press Release (March 12, 2008)

The Retirement Decisions of Two-Career Couples

Marilyn Gardner, a staff writer for The Christian Science Monitor presented a new angle on employee retirement decisions: what should dual career couples do? Overall, from a financial viewpoint, she writes that experts suggest that a staggered retirement works best. This works from the financial perspective, where leaving the workforce at different times may give one spouse time to earn more and serves as a hedge against uncertain financial markets or provide health insurance for a retired partner who is not yet 65 and thus eligible for Medicare. However, finances are not the whole story:

Couples stagger retirements for other reasons as well. "Typically the wife is a little younger and took time out for raising children," says Ronald Manheimer, executive director of the North Carolina Center for Creative Retirement in Asheville. "She came back into the workforce and is short of achieving full pension capability or is enjoying her level of accomplishment. She's not willing to give it up yet."

Source: Christian Science Monitor "Dual-career couples: Who retires when?" (September 9, 2007)