Savings Concerns Change During Years Surrounding Retirement

July 3, 2006 ( - Research from Prudential indicates that over 70% of Americans recognize the five years before and five years after retirement represent a time that might require a different approach to investing and retirement planning.

However, individuals in this “retirement red zone” period, as Prudential calls it, are split evenly between what investment approach is riskier, according to the study report. Half worry that investing conservatively may result in not having enough savings in retirement, while the other half worry that an aggressive approach could result in a devastating loss of principal.

When Prudential presented survey participants with a scenario of the effect a significant market downturn during the years immediately preceding retirement would have on their retirement savings, 63% indicated they were not aware of how seriously the event would affect their nest egg.

Once aware, according to the report, 66% said the scenario prompted them to rethink their investment strategy. Sixty-two percent said it made them wonder if they have saved enough and are prepared for retirement. Over half (54%) said they questioned whether they were getting the best advice.

Survey participants were aware of the need for an income stream in retirement, but were not very knowledgeable about how to produce that income. Almost two-thirds (64%) of the pre-retirees and almost half (48%) of the retirees surveyed plan to use tax-advantaged retirement accounts to generate income in retirement. Sixty-nine percent said they expect to “gradually draw down their retirement savings” in retirement. Most were not aware of products and features that can lock in market gains (73%) or protect against principal loss (63%). Almost half were not aware of products that can guarantee a minimum annual return (46%) or provide income for life (46%).

Other than the risk of investment losses depleting their retirement savings, participants were aware of other factors that could hinder their income security. However women seemed to have more concerns than men. Twenty-three percent of the women surveyed were single, divorced or separated, or widowed, while only 8% of the men were.

Women indicated greater concern about the risks of inflation, illness, or inadequate savings may have on their retirement security than men. Forty percent of women versus 30% of men said they would reduce their quality of life to preserve savings in retirement.

In addition, the report said 60% of respondents expect to have to care for others during their retirement years. Sixteen percent expect to provide care for children, grandchildren or other family members, while 17% expect to provide care for their spouse. Almost half (46%) expect to provide care for their spouse in their retirement years.

While almost two-thirds said they are concerned that illness or disability will make them a burden on their loved ones after retirement, less than a third have purchased long-term care insurance.

This study, conducted online between February 9 and February 20, 2006 polled 1,038 Americans, 515 of whom were within five years of their expected retirement date, and 523 who had retired within the last five years.

The study report is here .