Survey of Americans between ages of 44 to 49 found that 77% were more scared of outliving their assets than they were of dying.

By Chris Metinko, March 20, 2014

NEW YORK (MainStreet) — Uncertain markets, lack of once-reliable retirement income and questions about savings have many fearing outliving their money in their golden years — even more than death.

That’s according to a new survey by the Allianz Life Insurance Company, which found 61% of those surveyed said they were more scared of outliving their assets than they were of dying. The numbers got even higher when looking at those between the ages of 44 and 49, where 77% said they feared outliving their retirement money more, and that number rose to 82% for those in their late 40s who had dependents.

“Planning is key,” said Katie Libbe, vice president of consumer insight at Allianz. Libbe said two out of five people retire before they had planned, leaving many short. She said those planning to keep the same lifestyle in retirement must carefully watch savings and investments, and appropriately managing risk when necessary.

“It can be difficult,” she said. “You want to manage your downside, but you don’t want to limit your upside too much.”

Libbe said a good rule of thumb is to stress upside more when you’re younger — as you can ride out a bad market if one hits. However, when you are between five and 10 years away from retirement, you want to start to limit your risk.

“I think a lot of people learned a lot from 2008,” Libbe said. “At 40 you should be aggressive, but come 50 or 55, you have to start protecting around your assets.”

The research found the economic downturn that started in 2008 did indeed cause a major shift in the financial behaviors of many Americans. More than half of those who responded said their net worth dropped significantly in a very short period of time, with 43% saying their home value dropped and 41% saying they realized they were not as “in control” of their financial future as they had thought.

To combat the downturn, many respondents said they changed their behaviors, with more than half — 52% — saying they cut back on entertainment and dining expenses, 42% saying they found ways to cut daily expenses and 11% told their children to expect less financial support.

5% said they actually moved and decided to move to a less expensive area.

Despite the uptick in the economy, many still feel unprepared for retirement. More than half of those surveyed between the ages of 44 and 54 said they feel that way, and 77% of those with lower income levels feel “totally unprepared for retirement.” And 56% of those respondents said recent market events have caused them to question when — if ever — they can retire.

Libbe said those facing retirement — or uncertain of it — should figure out their cash flow and see what the gap is between their future expenses and their anticipated retirement income. She admits it has gotten difficult for many who can no longer rely on pensions or just their 401(k)s to get them through their golden years, but there are other options.

Libbe said to research annuities before retiring. More than half of the annuity owners surveyed said they like the product because it’s a safe long-term investment, a great way to supplement their retirement income, and an effective way to get tax-deferred growth potential. She added another option in retirement may be part-time work, as many Baby Boomers now in their later years have decided to go that route not just for added income, but also to stay engaged.

“Knowledge is power,” Libbe said. “If you can start planning now — with a professional or by yourself — and really figuring out what you need in retirement you will be ahead of the game.”


To Your Successful Retirement!

Michael Ginsberg, JD, CFP® 


Americans Continue to Face Saving Challenges, Survey Finds

According to a survey released last month by America Saves and the American Savings Education Council (ASEC), just 35% of Americans feel they are making good or excellent progress in saving money. Nearly two-thirds (63%) say they’re making fair or no progress.

However, nearly 7 out of 10 (68%) say they are spending less than they are earning and saving the difference, and 64% report having emergency savings to cover things like unexpected car repairs. More than three-quarters of respondents say they are paying off their consumer debt or living debt-free. Although these numbers are higher than or the same as they were in 2013, they are lower than they were in 2010.

Importantly, the percentage of Americans building their net worth through home equity has declined substantially over the past few years, from 68% in 2010 to 54% this year. And those who expect to live mortgage-free in retirement fell from 78% in 2010 to 68% today.

“Only about one-third of Americans are living within their means and think they are prepared for the long-term financial future,” said Stephen Brobeck, executive director of the Consumer Federation of America and a founder of America Saves.

Sharp differences between income levels

Perhaps not surprisingly, those reporting the greatest challenges were in the lowest annual income levels measured. While no stark differences were noted between the $50,000 and $75,000 income level and the $75,000 to $100,000 range, the percentages dropped dramatically in the $25,000 to $50,000 income range. For example, although more than 8 out of 10 people in the higher income brackets said they had a sufficient emergency fund set aside, just 63% of those in the lower income level said they had enough to cover unexpected emergencies.

$25,000-$50,000 $50,000-$75,000 $75,000-$100,000
Spend less than income, save difference 69% 82% 81%
Reduce consumer debt or debt-free 78% 88% 91%
Sufficient emergency fund 63% 82% 85%

Spending plans and saving goals may make a difference

The survey authors note that one factor that may contribute to the decline is the falling percentage of Americans who say they have savings and spending plans. The percentage who report having a “savings plan with specific goals” fell from 55% in 2010 to 51% in 2014. Those with a spending plan that includes an amount set aside for saving fell from 46% in 2010 to 40% in 2014.

“As numerous studies have shown, those with a plan save much more effectively than those without one,” said Dallas Salisbury, chief executive officer of the Employee Benefit Research Institute (EBRI) and chairman of ASEC.

“Individuals continue to become realistic about the need to save and plan themselves, rather than assume it will be done for them,” he continued. Each year in its annual Retirement Confidence Survey, EBRI finds that individuals who set financial goals tend to be more confident about their financial future than those who do not.

About the survey

The 7th annual national survey assessing household saving was released as part of America Saves Week, which took place February 24 to March 1, 2014. America Saves Week is an annual event that brings corporate, government, and nonprofit organizations together to promote good savings behavior. America Saves is managed by the Consumer Federation of America, and the American Savings Education Council is managed by EBRI. Sponsored by these organizations, the survey represented the views of 1,108 adult Americans contacted by phone from January 30 to February 2, 2014.


To Your Successful Retirement!

Michael Ginsberg, JD, CFP® 


Popular 401(k) choice is still badly broken – Target Date Funds did well in 2013 for all the wrong reasons

Fortune Magazine By Stephen Gandel, senior editor February 18, 2014

There were cheers last week on news that the average balance of Americans’ 401(k) accounts had grown to $89,300. That’s not enough to retire on. But it’s nearly double the average $45,519 that was in those accounts five years ago.

The problem is more and more of that money is in funds that do a poor job of insuring those retirement funds will continue to grow, namely so-called target-date funds. About half a trillion dollars are invested in these funds, up from just over $70 billion in the mid-2000s. And much of that money pours in via 401(k) accounts.

The funds are supposed to give you a pre-calibrated portfolio, usually spread between stocks and bonds, based on when you are likely to retire. The funds recalibrate that portfolio as you get closer to retirement. The closer you are to retirement, the less risky the portfolio is supposed to be. But it doesn’t always work that way. And there seems to be no uniformity in how portfolios are put together. A 2015 target-date retirement fund from T. Rowe Price and Fidelity might have very different holdings of stocks and bonds, though the average investor wouldn’t know that.

A few years ago, the Securities and Exchange Commission began to look into whether target-date funds mislead investors into a false sense of security. The regulator has proposed a rule to address this issue. It’s up for comment and appears to be stuck there.

So, it seemed like welcome news recently when the Wall Street Journal reported that target date funds had proved at least some naysayers wrong. Last year, the article said, was a “year of redemption” for the funds. Target-date funds, even those that were close to their target retirement year, did pretty well in 2013. That was a surprise to some, who worried that the funds might suffer huge losses if bonds had a bad year, which they did in 2013 — their worst since 1994.

Good news? Not really. The funds performed well in 2013 because they didn’t hold enough bonds, relative to what they should. Last year was a down year for bonds. But that is relatively rare. And the average bond fell only 2%. The stock market falls by 10 times as much in its worst years. So the funds’ good performance in 2013 was not because they are safer than they seem. It’s because they are riskier, putting more money in stocks than they should. That bet paid off in 2013, when the market was up 30%, but it won’t always.

Mutual fund companies have loaded up target-date funds with stocks because, over time, stocks tend to do better than bonds. And with more stocks, the funds on average should show higher returns over long periods. The fund companies can then tout those returns and how they are better than a competitor with the same date target fund. What you aren’t told is that greater performance comes with the risk that a good portion of money you put in the fund could go poof if you happen to retire in a year, like 2008, when the market drops.

In January, for instance, when the stock market dropped, T. Rowe Price’s Retirement 2015 fund (TRRGX) fell 1.7% in one month, which, if it had continued to go that way, would have been down just over 18% for the year. That would be pretty bad for anyone retiring next year. But the market recovered in February, and so did T. Rowe’s retirement fund, up 1.9% in the first two weeks of February. Problem solved! Not really.


To Your Successful Retirement!

Michael Ginsberg, JD, CFP® 


Retiring Workers Aren’t Planning How To Use Savings

FEBRUARY 18, 2014 • Financial Advisor magazine

Women are twice as likely to not have a plan for using defined contribution plan savings in retirement than men, according to a new study by the Limra Secure Retirement Institute announced Tuesday.

The study found that 27 percent of U.S. workers ages 55 to 64 say they do not know how they will use their defined contribution plan savings after they retire. Thirty-eight percent of women and 19 percent of men say they do not know how they will use these funds.

“It is surprising that such a large proportion of older workers have failed to do this basic level of income planning when most are within 10 years of retirement,” says Matthew Drinkwater, associate managing director, LIMRA Secure Retirement Institute research.

“Many believe that they can delay retirement indefinitely, or work in retirement, so it’s possible they feel that there’s no near-term need to engage in this kind of planning. But that belief is risky; people often retire earlier than anticipated. It makes sense to give thought to how you will use your DC plan balances sooner rather than later,” he adds.

The study found that two-thirds of workers ages 55 to 64 planned to make withdrawals, either directly from their DC accounts or after rolling over the assets into an IRA.

“Going through the planning process during the pre-retirement years may prompt changes in their savings behavior, how they allocate their assets or the decision to purchase other retirement products,” notes Drinkwater.


To Your Successful Retirement!

Michael Ginsberg, JD, CFP®