On Retirement

No. 1 retirement concern: Fear of the unknown

Mar 13, 2012 @ 12:01 am

By Mary Beth Franklin

The latest Retirement Confidence Survey is out today. For the 22nd year, the Employee Benefits Research Institute and Matthew Greenwald & Associates have asked American workers about their retirement dreams and concerns. Not surprisingly, Americans' confidence about their ability to retire comfortably remains at an all-time low of about 14%--about the same level it has been each year since the onset of the Great Recession.

What strikes me is that those who are already retired express higher levels of confidence than current workers about several key financial aspects of retirement: 21% are very confident about having enough money to live comfortably throughout their retirement years while 42% are somewhat confident.

Perhaps Americans' greatest concern about retirement is their fear of the unknown. Many can't wrap their minds around the process of switching from earning a weekly paycheck to creating a stream of income from savings, Social Security, and for the lucky minority, a pension.

Today's Retirement Confidence Survey is just another indication of how people learn to adapt to almost any situation. True, it may have been simpler in the past to figure out the parameters of retirement income by adding up the amounts of a monthly Social Security and pension checks and learning to live within those limits. And, for many future retirees without the benefit of a traditional pension, it may be tougher for them to figure out how much they can afford to spend each month.

But that's where financial advisers can play a crucial role. For so many workers, saving for retirement is a do-it-yourself project with help from the company 401(k) website, various on-line calculators, and financial advice from newspapers, magazines and books. But as millions of baby boomers near retirement age, many of them will be reaching out to financial professionals to help them with the transition from work to retirement.

The brave new world of retirement will be challenging for both investors and financial professionals. Increasingly, part-time work may play a crucial role in a secure retirement and consumers will be looking to advisers to guide they about how much they need to earn to supplement their savings and how it might affect their Social Security claiming strategies and tax situation.

And a variety of emerging financial products, such as a new generation of annuities, may be needed to set the floor on guaranteed income, or longevity insurance that only pays out at very old ages may be necessary to hedge against the challenges of living too long.

The other area of growing concern for both current and future retirees is the cost of medical and long-term care and how best to provide for those needs. Only 13% of current workers are very confident about being able to pay for medical expenses in retirement and only 9% are confident they will be able to afford long-term care expenses. Yet, once again, retirees seem to be more confident about their ability to absorb these costs than current workers: 24% of retirees are very confident about having enough money to pay for medical expenses (Medicare eligibility starting at age 65 probably has a lot to do with it) and 18% are confident about being able to have enough money to pay for long-term care.

Knowledge is power. Advisers working with pre-retirees can go a long way to alleviating their fears of the unknown and creating a workable plan for retirement income. And advisers will probably have a little extra time to lay the ground work as 37% of current workers now say they plan to retire beyond age 65. Compared to 20 years ago, that's more than triple the number of workers who planned to work that long.

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