Middle-Class More Vulnerable in Retirement than Previously Thought

Middle-Class More Vulnerable in Retirement than Previously Thought

New Report Demonstrates Need for Guaranteed Retirement Income Sources Such as Lifetime AnnuitiesFor Video and Audio Related to this story, go to: http://inr.mediaseed.tv/Paycheck_36599/


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Middle-Class More Vulnerable in Retirement than Previously Thought

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    WASHINGTON, June 10
/PRNewswire-HISPANIC PR WIRE/ — The findings of a new report released today
indicate that the decline in the stock market in the last six months of 2008
dramatically worsened the retirement outlook for middle-class Americans.  The analysis, conducted by Ernst & Young
LLP on behalf of the retirement coalition Americans for Secure Retirement
(ASR), finds that due to the economic downturn, the retirement assets of recent
and near retirees decreased between 14 and 17 percent in the last six months of
2008. This decline significantly reduces the likelihood that middle-income
retirees will have enough financial resources to last them through their
lifetime.

 

    The study also
determined that many Americans will be forced to reduce their standard of
living, some by as much as 51 percent, to avoid outliving their financial
assets and that households with a guaranteed source of retirement income
outside of Social Security, such as a lifetime annuity, showed the greatest
chance of financial success. Conversely, the study found that households with
no guaranteed retirement income outside of Social Security are most vulnerable
to outliving their financial assets.

 

    The new report is an
update to Ernst & Young’s July 2008 Retirement Vulnerability Study. The
2008 study found that almost three out of five middle-class new retirees could
expect to outlive their financial assets if they attempted to maintain their
pre-retirement standard of living.

 

    "In only 6 months,
the financial downturn has had a significant adverse impact on the retirement
assets of middle-income Americans and on their prospects of a secure
retirement.  As was the case in our 2008
study, our update finds that people with a guaranteed source of income outside
of Social Security are much better positioned than those that are without
guaranteed income," said Tom Neubig of Ernst and Young.

 

    "Now more than
ever, it is critical that Americans have guaranteed retirement income through
vehicles like lifetime annuities," said Bill Waldie, Chairman of ASR.  "The traditional retirement system of
pensions and Social Security are increasingly no longer enough for retirees and
there is a critical need for Congress and policy makers to act, to help
Americans secure their retirement future."

 

    Findings of the report
include:

    — A recently retired
married couple earning $75,000 a year with a defined benefit plan has a 57
percent chance that they will have enough financial resources in retirement.
The same couple, without any guaranteed source of retirement income, is left
with only a 6 percent chance of financial success.

 

    — A near retiree
single female, earning $50,000 a year with a defined benefit plan, has a 66
percent chance that she will not outlive her financial resources. The same
female, without any guaranteed source of income in retirement, is left with
only an 18 percent chance of financial success.

 

    — Solutions to this
retirement challenge are currently being considered in the Congress. In the
House, Representatives Earl Pomeroy (D-ND) and Ginny Brown-Waite (R-FL) have
introduced the Retirement Security Needs Lifetime Pay Act, H.R. 2748. While in
the Senate, Senators Kent Conrad (D-ND) and Pat Roberts (R-KS) are planning to
re-introduce the Retirement Security for Life Act, a measure that received
broad bipartisan support in the 110th Congress. Both bills would create greater
accessibility to non-qualified lifetime annuities by creating a tax incentive
to convert a portion of a person’s savings or assets into a steady
"paycheck" for life. The bills would provide a 50 percent tax
exclusion on the annual income from a non-qualified annuity, saving a typical
American in the 25 percent tax bracket up to $5,000.

 

    In the updated report,
Ernst & Young looked at six of the original 36 typical middle-income
households approaching retirement from the 2008 study, chosen because they
represent retirement vulnerability across all middle-income households
approaching retirement: married couples at or near retirement making $75,000 in
earnings with and without guaranteed retirement income, and single females
making $50,000 in earnings seven years before retirement with and without
guaranteed retirement income. 

 

    Americans for Secure
Retirement (ASR) is a broad-based coalition of more than 40 organizations who
are united in their commitment to ensuring retirement security for all
Americans. Our members share the goal of raising awareness of the retirement
problem and crafting creative solutions to help people save and prosper in
their retired years.  Specifically, the
coalition advocates for  Congress and
policy makers to encourage greater access to retirement security by passing a
tax incentive for lifetime annuities, the only retirement vehicle that offers a
guaranteed stream of income in retirement – a steady paycheck for life.

 

    To view the original
retirement vulnerability study and the recently completed update, please visit
www.paycheckforlife.org. Charts detailing the findings of the new report
follow:

 

Changes in
retirement vulnerability metrics of middle-income households without defined
benefits plans from July 1, 2008 to December 31, 2008

 

                                                      
Probability
of not

                                               
        outliving their

                                                       
financial
assets

                                                        
(success
rate

 

      
Marital          Income       Retirement   July
1,  Jan. 1,   Percent

   
status/gender       group          age        
2008     2009     Change

 

      
Married          $75,000       Near

                                   
retirement       7%       4%       -42%

 

      
Married          $75,000      Recent

                    
                
retiree        10%       6%       -44%

  

     
Single female     $50,000       Near

                                   
retirement      23%     
18%       -19%

 

 

                                                      
Percent
reduction in

                                                         

pre-retirement

                                                      
standard of
living to

                                                      
increase
success rate

                            

                                to 95 rate

 

      
Marital         Income       Retirement    July
1,   Jan. 1,   Percent

   
status/gender      group         Age          
2008      2009      Change

  

      
Married        $75,000        Near        

                                   Retirement      -49%      -51%        5%

  

      
Married        $75,000       Recent       

                                   
Retiree        -38%      -41%        9%

  

      
Single female  $50,000        Near         

                                  

Retirement      -38%      -41%        6%

 

 

 

 

Changes
in retirement vulnerability metrics of middle-income households with defined
benefit plans from July 1, 2008 to December 31, 2008

 

                               

                       Probability of not

                                                       
outliving
their

                                                       
financial
assets

                                                        
(success
rate

                                                  

      
Marital           Income     Retirement     July
1,  Jan. 1,   Percent

   
status/gender        group        age          
2008     2009     Change

  

      
Married          $75,000       Near

                                   
retirement      43%       31%       -26%

 

      
Married          $75,000      Recent

                                    
retiree        69%       57%       -18%

 

      
Single female    $50,000       Near

            
                       
retirement      73%       66%       -10%

 

                                                      
Percent
reduction in

                                                         

pre-retirement

                                         
             standard of living to

                                                      
increase
success rate

                                                            
to 95
rate

 

      
Marital         Income       Retirement    July
1,   Jan. 1,   Percent

   
status/gender      group         age          
2008      2009      Change

  

      
Married        $75,000        Near        

                                  

retirement      -26%      -28%         9%

 

      
Married        $75,000       Recent       

                                   
retiree        -14%      -18%        24%

 

      
Single female  $50,000        Near        

                                  

retirement      -13%      -16%        17%

 

 

 

    What Congress is Saying
about the Updated Ernst & Young Study

    "This study offers
another stark evaluation of Americans’ retirement readiness.  Most middle class Americans have the bulk of
their savings in their IRAs and retirement savings plans, and when faced with
the significant investment losses seen in recent months, many feel that they
cannot make their savings last a lifetime. Annuities enable these workers to
maximize the income from their savings while guaranteeing a monthly retirement
paycheck for life. Congress needs to help Americans not just with building a
nest egg but also to encourage individuals to use insurance tools that supply
the much need cash flow in retirement. 
Legislation like the Retirement Security Needs Lifetime Pay Act would
help them secure a reliable retirement." 
– Congressman Earl Pomeroy (D-ND), Co-Sponsor of H.R. 2748, the
Retirement Security Needs Lifetime Pay Act

    "The solutions
generated by this study provide a realistic check as well as hope to the
millions of Americans evaluating their retirement. It may make a great deal of
sense for certain retirees to convert a portion of their assets into a
guaranteed source of income.  Doing so
will let Americans feel more secure that they will not outlive their finances
and be able to live out their golden years as comfortably as possible." –
U.S. Representative Ginny Brown-Waite (R-FL), Co-Sponsor of H.R. 2748, the
Retirement Security Needs Lifetime Pay Act

    "Unfortunately,
there continues to be a disconnect, made worse by the downturn in the economy,
between the hopes and realities of a great many Americans looking to retire in
the near future. This report further illustrates the need for Congress to act,
to increase the availability of all retirement options and help Americans
secure the retirement they deserve." – U.S. Senator Kent Conrad (D-ND),
Co-Sponsor of the Retirement Security for Life Act, S. 1010

    "We should pass
legislation to encourage the purchase of annuities to provide a guaranteed
stream of income for individuals during retirement. This could be particularly
attractive for those that don’t have employer-sponsored retirement plans
including the self-employed like farmers and ranchers, and small businesses.
These are hard working Americans who have saved for retirement on their own and
want to ensure that their retirement savings last through their lifetime."
– U.S. Senator Pat Roberts (R-KS), Co-Sponsor of the Retirement Security for
Life Act, S. 1010

 

SOURCE  Americans for
Secure Retirement

Middle-Class More Vulnerable in Retirement than Previously Thought