Whether you want to believe it or not, the retirement struggle is real.
A recent survey from GOBankingRates observed that a third of Americans hadn't saved a dime toward retirement, while another 23% had less than $10,000 socked away. In contrast, fewer than 1 in 5 people surveyed had anything resembling a comfortable retirement nest egg north of $200,000 (and even this might be pushing the definition of "comfortable").
But one of the best measures of retirement preparedness is established every two years when the Society of Actuaries (SOA) releases its mammoth, highly detailed report. In June, the SOA released its latest findings.
The Society of Actuaries' 2015 Risks and Process of Retirement Survey questioned 2,040 individuals between the ages of 45 and 80 to "evaluate Americans' awareness of potential financial risks in retirement, how this awareness impacts the management of their finances with respect to retirement, and how Americans are managing the process of leaving the workforce," according to the report. What we learned is that pre-retirees (defined as age 45 and up, but not retired) and retirees exhibit marked differences when it comes to retirement preparedness. However, as you'll see a bit later, they do share one striking similarity.
Five major difference between retirees and pre-retirees
Here are five glaring differences between retirees and pre-retirees that stood out in the latest SOA report.
1. Pre-retirees are more concerned about retirement risks
This might be contrary to what you had thought, but people who've yet to retire tend to worry more about various retirement risks than those who are already retired. The SOA observed that the worries for both retirees and pre-retirees tend to be similar, but the amount they worry is remarkably different. For instance,
- 69% of pre-retirees expressed concern about affording long-term care vs. 58% of retirees.
- 69% worried about inflation vs. 52% among retirees.
- 67% feared paying for healthcare vs. 47% among retirees.
- 63% are concerned about maintaining a reasonable standard of living vs. 45% among retirees.
- 62% fear depleting their savings vs. 43% of retirees.
Since pre-retirees have yet to cross the finish line, the fear of the unknown can potentially guide their saving and investing strategy.
2. Pre-retirees plan to work into traditional retirement years
Of pre-retirees surveyed, nearly 70% said that they expected to work into retirement, and 46% expected to delay their retirement. This high figure suggests that pre-retirees probably aren't comfortable with the amount they've been saving for retirement.
By comparison, only 30% of current retirees wound up working in retirement, and just 12% tried to postpone their retirement. In other words, pre-retirees are probably being overly optimistic about their chances of finding a job in their golden years, as well as having the flexibility to simply delay their retirement. With jobs becoming more intertwined with technology, it could be tougher for seniors to find jobs than they realize.
3. Pre-retirees believe they can reduce their expenses in retirement
Based on the SOA's survey, 43% of pre-retirees believe their early retirement expenses will be below pre-retirement expense levels. Since retiring means forgoing regular wage income, pre-retirees should be aiming for a lower-expense budget. Only 17% of pre-retirees expected their early retirement expenses to rise compared to their expenses just prior to retirement.
However, nearly 4 in 10 (38%) retirees said that their expenses during retirement were higher than expected. The SOA survey found that 83% of retirees have made a conscientious effort to reduce their spending in retirement, mainly through more prudent purchasing habits and eating out less often.
A suggestion to consider is transitioning to your retirement budget gradually, months or even years before you actually retire. I'd suspect far too many retirees receive an income/expense shock in early retirement because they're unprepared for the sudden drop in regular wage income. Transitioning slowly should help seniors avoid this shock and the potential to overspend that could come with it.
4. Pre-retirees are more likely to hold debt
This may come as no surprise to readers, but pre-retirees are far more likely than retired people to be carrying debt. More than half (52%) of all pre-retirees surveyed had a mortgage, and nearly half (48%) had credit card debt. On the other hand, just 30% of current retirees had mortgage debt, and only 35% were carrying credit card debt. Pre-retirees have time to pay off their debt before they retire, which is a luxury that retirees usually don't have.
Of course, the survey also notes that because of their higher levels of debt, pre-retirees tend to be more exposed to negative savings consequences. Some 56% of pre-retirees surveyed suffered some adverse impact on their ability to save due to their debt. Let this serve as a reminder to use your debt wisely.
5. Pre-retirees are more likely to provide financial support to others
Finally, pre-retirees were found to be considerably more likely than retired persons to provide financial support to people other than themselves or their spouse/partner. Based on SOA's data, 30% of pre-retirees affirmed that they were financially helping someone else. In many instances this was for children under 21, and it often involved funds for school or college. Comparatively, only 13% of retirees are providing financial support to people other than themselves or their spouse/partner.
This finding is particularly worrisome because it suggests some pre-retirees could be cheating themselves out of a comfortable retirement by putting the college needs of their children before their own retirement. Remember, your kids can always take a loan out against their education, but retirees can't take out a loan against their retirement.
One striking similarity between retirees and pre-retirees
Despite their differences, one striking similarity shared by retirees and pre-retirees based on the SOA's survey is that both underestimate the average life expectancy, which the SOA suggests may also mean they're underestimating their own life expectancy.
Both pre-retirees and retirees expect to live to a median age of 85. Yet, more than half of pre-retirees (55%) and retirees (57%) know someone within their family who lived past the age of 90. In short, underestimating their own life expectancy could mean falling short of saving enough to make their nest egg last throughout retirement. What this means is that pre-retirees need to readjust their retirement numbers and revisit their plans on a regular basis to ensure that they won't outlive what they've saved.