Retiree Portfolio Economic Security Beyond Age 50

A recent AARP report highlights some major issues regarding the financial status and security of those age 50 and older. It concludes that the traditional concept of retirement has changed, and that the risk of ensuring sufficient retirement income rests increasingly on employees instead of employers. The report also emphasizes the heightened problems facing retirees due to healthcare costs. Greater planning by the nation in general, and individuals in particular, is required.

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By Dave Braze (TMF Pixy)
May 29, 2001

On May 23, AARP released Beyond 50: A Report to the Nation on Economic Security. The report highlights the financial condition of Americans age 50 or older. According to AARP, "The 'Beyond Fifty' report seeks to provide a definitive picture of the economic status of people after they turn 50. It appraises past assumptions and identifies new trends and areas of concern. At its most basic level, 'Beyond Fifty' is a story about redefining retirement and preparing for it. But most of all, 'Beyond Fifty' is a wake-up call for the future."

In general, Beyond Fifty outlines five key findings:

• The diversity of Americans age 50 or older resembles that of the nation.
• Americans age 50 or older are redefining retirement.
• Today, a financially secure retirement requires four strong pillars: Social Security, pensions/savings, earnings, and health insurance.
• The income and asset levels of most 50+ Americans have risen over the last two decades.
• Americans age 50 or older are shaped by the role of Social Security in retirement income, the financial threat posed by healthcare costs, and the disparities between the "haves" and the "have-nots."

These findings largely confirm what The Motley Fool has been stressing over the last few years. The traditional concept of retirement has changed (see "The New Face of Retirement"), and increasingly, the risk for producing retirement income has shifted from employers to employees (see "Will You Have Enough to Retire?"). This report, though, adds a few disturbing conclusions:

• While the poverty rate for those over the age of 62 has declined, the chance of being poor at some point after age 60 is 40%.
• Because less than half of all workers have a employer-provided pension and because it represents more than half of all retirement income for 60% of retirees, we must strengthen the Social Security program as a guaranteed source of retirement income.
• A secure retirement depends on savings and successful investments, so we must encourage and promote tax-favored savings for those whose incomes preclude them from setting aside sufficient retirement money without such assistance.
• Without protection against healthcare costs, virtually no one can be economically secure. Health insurance for those between ages 50 and 64 is urgently needed.
• For those in the lowest income quartile, economic security will depend on the ability to earn as well as the availability of safety net programs such as Medicaid.

In my opinion, the report certainly provides sufficient data to ponder. I urge all of you to read it. You will, as I did, learn a few things about the nature of today's retirement and today's retirees.

Beyond Fifty, unlike previous studies, looks at far more issues over a wider range of ages. Older studies focused on much narrower issues, and they concentrated on those over age 65, the traditional retiree population. Therefore, they failed to detect the actual diversity prevalent in the over-50 crowd. And certainly those older reports didn't reflect the fact that 60% of all workers who retire today take Social Security at age 62 versus only 40% who did so in 1980.

For clarity, I should note that the report examines three age groups: pre-retirees (age 50 to 61), younger retirees (age 62 to 74), and older retirees (age 75 and up). Younger retirees have a much higher rate of workforce participation, better health, higher incomes, and more intact couples than older retirees, who are more likely to have declining incomes, assets, and health.

As a group, pre-retirees are considered those at greatest risk. I was particularly struck by these statistics:

• Less than half are in the current workforce.
• Forty percent are married and 34% are divorced.
• One-third live alone.
• Only two-thirds have a high-school diploma.
• Fourteen percent do not have health insurance.

Pre-retirees in the lowest quartile of wage earners are facing even greater challenges:

• Thirty-one percent do not have health insurance.
• Forty-six say their health is poor or fair.
• Twenty percent of their income comes from Social Security (disability or survivors' benefits), and another 25% comes from other government cash transfer programs.
• Their average net worth is below $6,500.

The report offers no specific solutions to the problems it notes. But it certainly contains sufficiently disturbing data to motivate immediate action by any thinking person interested in an economically secure retirement. Without doubt, Beyond Fifty shows we have much to do as a nation to ensure the security of future retirees. And it reconfirms most strongly that a successful retirement just doesn't happen by chance. Instead, success requires planning, and the earlier that planning starts, the better. As one of AARP's concluding comments states, "As individuals, the better we prepare for life after 50, the more choices we will have as we grow older."

So plan your retirement, Fool. Otherwise, unpleasant consequences may follow. Want help? Just check out The Motley Fool's Roadmap to Retirement Seminar, and you'll be able to walk away with your own retirement plan.

I'll see you again on June 18 when I return from my annual family reunion with the grandkids. In the meantime and as always, post away on the Retirement Investing or the Retired Fools boards.

Best to all... Pixy

For the next two columns, Dave Braze will be lazing about the shores of Lake Champlain, rethinking his plans for retirement. Luckily for him, Nessie is not known to assault humans. Also, The Motley Fool is all about investors writing for investors, a fact that makes his planning job all the easier.