More-Realistic Retirement Expectations Needed

People have unrealistic expectations about when they will retire, how much money they will need in retirement and where that income will come from, according to The Future of Retirement Income, a survey from insurance provider Genworth Financial, Inc.

“Unpredictable retirement dates, compounded by misconceptions about retirement expenses and the uncertain futures of traditional sources of retirement income may leave many retirees at risk for outliving their retirement savings if they don’t prepare properly,” says Eric Taylor, vice president and national sales manager for Annuities at Genworth, based in Richmond, Virginia. “The findings underscore the need for flexible financial solutions that provide reliable retirement income, such as fixed annuities.”

The survey results indicate while 73% of preretirees are confident they will retire as planned, only 48% of retirees actually do so. Forty-six percent retired sooner than planned. Although the primary reason was due to job loss (36%), health issues (17%) and family issues (12%), an additional 25% retired early because they just “didn’t want to work anymore.”

One problem, according to the authors of the survey report, is expectations about retirement expenses do not match reality. More than half (52%) of preretirees expect expenses to decrease in retirement, while 65% of actual retirees find expenses stay the same or increase in retirement. Seventy-seven percent of retirees say general living expenses increase in retirement. In addition, retirees see increases in health care costs (41%), real estate related expenses (26%) and money spent on dependents (18%). Only 15% found their retirement plan exceeded expectations, and just 12% had more money saved than anticipated.

The survey results show another problem is retirees’ reliance on uncertain income sources. Retirees in the survey estimate 44% of their retirement income comes from pensions and an additional 28% from Social Security benefits. But preretirees estimate more than half of their retirement income will derive from sources subject to market volatility and vulnerable to rising interest rates, including qualified retirement plans (27%), individual retirement accounts (13%), and stocks and bonds (12%).

Compounding the problem, say the survey report authors, is only 50% of people who work with financial professionals about retirement actually have a written plan for retirement. Just two out of five have distribution plans for taking income in retirement.

The survey results also reveal fixed annuity ownership brings more certainty and confidence, with 56% of annuity owners knowing how much money they will have each month in retirement, compared with 48% of non-annuity owners. In addition, annuity owners are more confident than non-owners that their current retirement plans will afford them the retirement they want.

“For consumers looking to reduce uncertainty related to their financial futures, fixed annuities can be a great solution,” Taylor said. “As our survey finds, fixed annuities offer welcomed guarantees to consumers when it comes to retirement income planning.”

During 2012, Genworth conducted the survey with Directive Analytics, a third party research administrator. An online survey was completed by 1,340 retired consumers and preretirees between the ages of 40 and 80 with at least $50,000 in household income. In addition, 400 financial professionals with at least one year of experience were queried.