Retirees Only Planning Finances Five Years Ahead

[mickeyd]

Looks like the definition of long-term has been changed to 5 years. I have always considered it to be at least 30 years or so. What do you guys consider long-term to be?

“Retirees are planning for only five years down the road and yet many are as confident as they were before the 2008 recession,” says Sally Bryck, associate research director of Limra, a research and professional development organization for insurance and financial services companies.

“There is a disconnect. How can they have confidence if they do not know how long their money will last? There is a gap between the way they are feeling and the way they are behaving,” adds Betty Meredith, director of education and research at the International Foundation for Retirement Education.

The study, The Financial Recovery for Retirees Continues, was done for the Society of Actuaries, Limra and the International Foundation for Retirement Education. The study, started four years ago, was taken of 461 retirees who were between 55 to 77 years old in 2008 and had $100,000 or more investable assets.

This year 85 percent of retirees in the study said they feel they will have enough money to live comfortably, almost back to the 2008 level, compared with 79 percent in 2009. Half feel their investments are being handled in the best possible way, again approaching the 2008 level after a dip in 2009.

Retirees Only Planning Finances Five Years Ahead

 

[W2R]

Incredible.

According to my financial planning, long term is another 32-42 years.

If I live to be older than 105, I may be in trouble.

 

[FIREd]

Thank goodness those clueless people can "partner with a trusted financial advisor for guidance". A variable annuity with a 10 year surrender period will teach them how to think long term.

 

[ronin]

Here's a link to the report.

The Financial Recovery for Retirees Continue.pdf

One interesting factoid:

"36 percent have not estimated how long their assets and investments might last, while 10 percent have not thought about it."

Ignorance is bliss I guess.

Another item:

"The level of interest in securing more guaranteed life income among these retirees has not changed. The percentage interested in converting a portion of their savings into guaranteed life income remains in the 30-percent range."

 

[Nords]

Thank goodness those clueless people can "partner with a trusted financial advisor for guidance". A variable annuity with a 10 year surrender period will teach them how to think long term.

Yeah, I was wondering if this study was funded by the surrender fees of the people who bought "long-term investment products"...

 

[Robert Colbert]

Start Early - Save Cash - Never Trust Stock Market.

The best way to prepare for retirement is to start early, save cash out of every paycheck. Invest only in secure bonds, like municipal or government bonds. Never trust the Stock market. Pay the max on your federal retirement fund or FICA account.

 

[REWahoo]

Invest only in secure bonds, like municipal or government bonds. Never trust the Stock market.

I disagree and so do a large number of others here who have become financially independent by investing in the markets. There are many ways to achieve retirement goals - yours may be great for you but one size does not fit all.

 

[JmfromTx]

Yeah, I was wondering if this study was funded by the surrender fees of the people who bought "long-term investment products"...

You have to admit there is a gold mine out there waiting for them. I don't know anyone that has come close to doing the research I have since I got into it in 95 and I still consider myself barely financially literate. To answer the OPs question I planned for 30 yrs and part of the plan was to die with more money than I have now. Time will tell if that comes to be.

 

[Nords]

The best way to prepare for retirement is to start early, save cash out of every paycheck. Invest only in secure bonds, like municipal or government bonds. Never trust the Stock market. Pay the max on your federal retirement fund or FICA account.

It's interesting that you equate the words "secure bonds" with "municipal bonds" and "government bonds". What exactly is it about them that makes them secure-- the ability of their issuer to raise taxes to pay for them, or the ability of the issuer to print more money to pay for them?

It's even more interesting that you feel a discussion board with nearly 17,000 members should invest in "only" one manner. As has been demonstrated here many times, there are many roads to early retirement.

 

[East Texas]

When you live day to day, paycheck to paycheck, and have little saved for emergencies or the future then five years is a long time. The problem with these kinds of studies is they have a single focus to direct the uninformed populace to "advisors" who can make all their problems go away. For the right price.

 

[pb4uski]

I disagree and so do a large number of others here who have become financially independent by investing in the markets. There are many ways to achieve retirement goals - yours may be great for you but one size does not fit all.

+1

 

[easysurfer]

Remember, the world ends in 2012. So they actually have a four year cushion

 

[Lsbcal]

Here's a link to the report.

The Financial Recovery for Retirees Continue.pdf

One interesting factoid:

"36 percent have not estimated how long their assets and investments might last, while 10 percent have not thought about it."

Ignorance is bliss I guess.
...

Occasionally I talk to a lady in her late 70's (I think). She's a bit worried right now about how long her money will last. She tends to talk about details but doesn't look at the picture as a whole.

Told her about FireCalc. She's computer literate enough to run it but I don't think the motivation is there.

Some people would rather wander about getting ideas from here and there.

 

[jIMOh]

 Retirees who do not receive enough income from Social Security and/or employer-sponsored defined benefit
(DB) pension plans to cover basic living expenses still show little interest in purchasing an annuity.
— The proportion of retirees who do not receive enough income from Social Security and/or DB plans to
cover their basic living expenses without using their savings, has remained consistent (44 percent in
2011, 47 percent in 2009 and 45 percent in 2008). The level of interest in securing more guaranteed life
income among these retirees has not changed. The percentage interested in converting a portion of their
savings into guaranteed life income remains in the 30-percent range.

I was assuming the study would be used to justify selling annuities. I have not finished article yet, but the above quote suggests I am a skeptic.

 

[jIMOh]

I was assuming the study would be used to justify selling annuities. I have not finished article yet, but the above quote suggests I am a skeptic.

And one more comment making my skepticism valid

Low interest in additional guaranteed income — retirees who do not have enough income from Social Security
and pension plans show little interest in converting assets into guaranteed income. Clients may benefit from a
better understanding of guaranteed income products and options if presented information in face-to-face meetings
or through simplified marketing materials.
 Among retirees lacking income from Social Security and pensions to cover basic living expenses, the
proportion interested in converting a portion of their savings into guaranteed income to address longevity
risk has remained constant since 2008 — around 30 percent — with only 5 percent being very interested
in 2011.

 

[Rustward]

It's interesting that you equate the words "secure bonds" with "municipal bonds" and "government bonds". What exactly is it about them that makes them secure-- the ability of their issuer to raise taxes to pay for them, or the ability of the issuer to print more money to pay for them?

It's even more interesting that you feel a discussion board with nearly 17,000 members should invest in "only" one manner. As has been demonstrated here many times, there are many roads to early retirement.

Your point is well taken.

Might this be parallel to saying that if one chooses to invest in mutual funds they should invest only in index funds?

...and for the subgroup, only Vanguard funds?

 

[Hamlet]

It's articles like this that convinced me that SS is actually a pretty good idea.

It forces me into a less than optimal spending of my money, but for most people it covers for a complete failure to plan for retirement.

 

[Chuckanut]

Here's a link to the report.
"The level of interest in securing more guaranteed life income among these retirees has not changed. The percentage interested in converting a portion of their savings into guaranteed life income remains in the 30-percent range."

I wonder if that has to do with trust. Trust that the financial institution will be around to make the income payments. Trurst that the financial institution will not try to weasel out of the deal. Trust that the financial institution can really do a better job than the individual.

 

[traineeinvestor]

I wonder if that has to do with trust. Trust that the financial institution will be around to make the income payments. Trurst that the financial institution will not try to weasel out of the deal. Trust that the financial institution can really do a better job than the individual.

That and the fact that you give up control over a big piece of your assets as well as the possibility of leaving a legacy for your children when you trade your money for one of these things. An annuity may be the right solution for some people, but not for everyone.

FWIW, out where I live the question is academic since you can't get a fixed annuity which yields as much as good quality corporate bonds (at least not until you are much older) and I've yet to find anyone that offers a product which factors in inflation).

 

[MichaelB]

I wonder if that has to do with trust. Trust that the financial institution will be around to make the income payments. Trurst that the financial institution will not try to weasel out of the deal. Trust that the financial institution can really do a better job than the individual.

That and the fact that you give up control over a big piece of your assets as well as the possibility of leaving a legacy for your children when you trade your money for one of these things. An annuity may be the right solution for some people, but not for everyone.

I think trust is an issue, loss of control of funds is too. There's also the low rate. Many people can't get past effective rates of on 1 - 1.5% when they can get much more investing themselves - in their minds. They don't know how to assign value to the guarantee once they resolve the trust.

 

[Koolau]

The "5-year planning" teaser in the thread made me think about my own situation for a moment. When I retired at 58, I had a "30-year plan." Oddly, I still have a "30-year plan" as I approach 65. I agree that 5 year planning is inadequate, but some of us "geezers" (like myself) may have the opposite problem: Thinking we always have 30 years left to cover. At some point, I really need to start thinking about a 25-year plan or maybe a 20-year plan. I much prefer my "problem" to those who plan only 5 years ahead in retirement. YMMV

 

[Chuckanut]

The only annuity that makes sense to me is the one that kicks in around 80 years of age. To protect against running out of money at an old age.

 

[Huston55]

It's articles like this that convinced me that SS is actually a pretty good idea.

It forces me into a less than optimal spending of my money, but for most people it covers for a complete failure to plan for retirement.

+1

It's forced savings that, for many, will be their only retirement income. I think there are many reasons for this (resources, fear, knowledge, willpower, etc.). But, it's almost not relevant "why" because it is and will likely always be so for a great many folks.

So, mandating SS is necessary for it to work, and good for society IMO, even though it redistributes wealth. So, it's a mandate that I'm OK with as it's currently structured.

 

[scrabbler1]

I separated my retirement plan into two parts. The first is from when I ERed (in 2008 at age 45) through age 65. The second is from age 65 through at least age 92 using Fidelity's Retirement Planning software (I am a FIDO client).

In the first part, especially before age 60, I have to live solely off my taxable accounts without tapping into my IRA (yes, I can tap into the IRA using the 72t rule, but I really want to have unfettered access to it starting at age 59.5). As long as I can make it to age 60 (or 65, preferably) intact, things will only improve for me after age 65 because I will have all me "reinforcements" in full force - my frozen company pension, SS, and the IRA. I will also have Medicare available which will reduce my health insurance costs.

According to the FIDO planner, my outlook worsens slightly before I turn 65 but then improves a lot after that.

So my planning horizon from when I first ERed was 15-20 years.

 

[mickeyd]

It appears to me that most posters to this group have done just about everything correctly when it comes to retirement preparation and have used errors and mistakes along the way as a one-time learning event. I really had no idea that my pensions and SS income stream would be so calming and not have to force me to have to dip into my portfolio stash too early, but that is what has happened. These kind of guaranteed income streams tend to have a very positive effect on the entire long-term portfolio.