Ernst & Young Study Finds Most Middle Class Retirees Will Outlive Retirement
Savings
Future Retirees without Guaranteed Income Will Need to Significantly Reduce
Standard of Living
WASHINGTON, July 14 /PRNewswire-USNewswire/ -- Almost three out of five new
middle-class retirees will outlive their financial assets if they attempt to
maintain their pre-retirement standard of living, according to a new study
conducted by Ernst & Young LLP on behalf of Americans for Secure Retirement.
The study also finds that middle-income Americans entering retirement now will
have to reduce their standard of living by an average of 24 percent to
minimize the likelihood of outliving their financial assets. Those Americans
seven years out from retirement are even less prepared and the study estimates
that they will have to reduce their standard of living by even more, an
average of 37 percent. These reductions will be necessary even when assuming
that retirees can maintain the same standard of living with income equal to 59
to 71 percent of their pre-retirement wages.
"Many Americans envision a retirement where their lifestyle continues much as
before," said Tom Neubig of Ernst & Young. "Our work shows that this is not a
realistic expectation and that, with the current state of savings and
potentially very long life expectancies, many retirees will have to cut back
far more on expenditures than they had ever expected."
The study finds that retirees are much better prepared to have a financially
secure retirement if they have a guaranteed source of retirement income beyond
Social Security, such as an annuity or defined benefit plan. For example,
married couples who have a guaranteed source of retirement other than Social
Security income making $75,000 at retirement have a 31 percent chance of
outliving their financial assets if they retain their pre-retirement standard
of living. Those with Social Security as their only guaranteed income have a
90 percent chance of outliving their financial assets during retirement.
"As a guaranteed source of retirement income, life annuities relieve the risks
and burdens of managing a nest egg and can maximize savings' value over the
course of an individual's retirement years," said Joe Reali, Chairman of the
Americans for Secure Retirement coalition.
"Life annuities are the only vehicle besides pensions and Social Security that
provide a steady stream of income for life - a 'paycheck for life.'"
The report was conducted by Ernst & Young on behalf of Americans for Secure
Retirement, a coalition of over 50 member and affiliate organizations
representing women's, small business, agriculture, Hispanic and African
American groups as well as the life insurance industry. The coalition is
committed to raising awareness about retirement challenges facing Americans
and advocating for policies that help Americans secure a steady stream of
income for their retirement.
Other key findings of the study include:
-- Persons that are 5-10 years away from retirement have a higher risk of
outliving their financial assets than those currently at retirement age. To
avoid outliving their retirement assets, these workers aged 55 to 59 will have
to increase their savings substantially or work beyond age 65. Otherwise, they
will have to reduce their standard of living significantly more than today's
retirees to minimize the risk of exhausting their financial assets.
-- Married couples are more likely to outlive their financial assets, due to
their longer joint life spans, than single households.
-- Montana, Wyoming and South Dakota citizens have the highest likelihood of
outliving retirement savings.
-- D.C., Rhode Island, Utah and New York citizens have the least likelihood of
outliving retirement savings.
"The findings of this report underscore that the public policy debate on
retirement needs to increasingly focus on how to help Americans manage their
retirement savings so that they last throughout retirement. This includes
pursuing policies that encourage retirement vehicles that provide retirees
with steady streams of income for their retirement," said Reali.
Legislation currently before Congress, The Retirement Security for Life Act
(H.R. 2205/S. 1010), would encourage Americans to secure a steady stream of
income in retirement through annuitization. The bills will encourage
Americans to have a steady source of guaranteed income in retirement providing
a tax incentive for lifetime annuities. Specifically, this legislation would
exclude 50 percent of the income received from a lifetime annuity from
taxation, up to $20,000 per year. For an average American taxpayer in the 25
percent tax bracket, this would result in $5,000 of tax savings. The
legislation, introduced by Senators Gordon Smith (R-OR) and Kent Conrad (D-ND)
in the Senate and Representatives Stephanie Tubbs-Jones (D-OH) and Phil
English (R-PA), has the support of 70 co-sponsors in the House and 12 in the
Senate.
About the Study
The study evaluates retirement vulnerability for 36 different types of typical
middle-class households, defined by three income levels ($50,000, $75,000 and
$100,000 of pre-retirement income); for married couples, single males and
single females; by employer provided defined benefit pension coverage status;
and by age (near- and new- retiree). The near-retiree is age 58, and planning
to retire at age 65. The recent retiree is age 65 and has just entered
retirement. Based on government data available to the public, the study
estimates the key financial and income information for these 36 household
types. Based on the relative weights of the different household examples, the
study estimates with E&Y's Retirement Analytics(TM) model the national overall
retirement vulnerability of middle-class near and new-retirees.
About Americans for Secure Retirement
Americans for Secure Retirement is a coalition of over 50 member and affiliate
organizations representing women's, small business, agriculture, Hispanic, and
African American groups as well as the life insurance industry. The coalition
is committed to raising awareness about the retirement challenges facing
Americans and advocating for policies that help Americans secure a steady
stream of income for their retirement. For more information on ASR and the
importance of retirement vehicles that help individuals make their income last
a lifetime, please visit www.paycheckforlife.org.
What Americans for Secure Retirement Coalition Members are Saying About the
Ernst & Young Study
"Retirement security has long been a concern for working women, because women
earn less and therefore have less money to save. Additionally, they live
longer, are often heads of household and as primary caregivers, spend less
time in the workforce to accumulate Social Security benefits and participate
in an employer-based retirement plan. This study by Americans for Secure
Retirement reinforces what we already know - we need to act now to ensure a
financially secure future for everyone."
-- Deborah L. Frett, Business and Professional Women/USA CEO
"The solutions generated by this study provide hope for the millions of small
business owners in this country. By converting their assets into a guaranteed
source of income like an annuity, entrepreneurs can feel more secure that they
will not outlive their finances and be able to live out their golden years to
the fullest."
-- Karen Kerrigan, President of the Small Business Entrepreneurship Council
and Founder of Women Entrepreneurs
"American homeowners take important steps everyday to increase their financial
literacy and this revealing report highlights their need to go one step
further to prepare for their retirement. It is not just about saving your
money anymore, but ensuring that you will have a steady stream of income
throughout your golden years."
-- Bruce N. Hahn, President of The American Homeowners Grassroots Alliance
"There is a serious disconnect between the dreams and expectations of the
citizens of our Nation for a secure retirement and the reality of our current
preparedness. We need to take charge of our future by being proactive today.
This report is an important document that should serve as a wake-up call for
the formulation of public policy to address the retirement challenges of
Americans."
-- Ricardo Aponte Parsi, Esq., President, Inter American Businessmen's
Association
"The findings of this study illustrate the benefits of guaranteed income in
retirement. Many small business owners have reinvested earnings and savings
over their lifetime into growing their businesses. Legislation like the
Retirement Security for Life Act would help them secure a reliable
retirement."
-- Barbara Kasoff, Women Impacting Public Policy (WIPP)
"The Hispanic Alliance for Prosperity Institute finds the outcome of the
recent Ernst & Young study The Retirement Vulnerability of New Retirees
especially alarming. Hispanic workers in America face a greater risk to their
retirement security than workers overall and are anxious about being able to
maintain a decent standard of living throughout retirement. We strongly
encourage Congress to embrace relevant financial education programs and
promote retirement policies which will provide proper retirement planning
options for Hispanics in America."
-- Jose Nino, HAP Institute Co-Chairman
"As the American and global economies have changed, Americans have drastically
changed how they live. Unfortunately, the retirement systems, especially
Social Security, have failed to adapt to the changing needs of American
retirees. It has become necessary for retirees to find new sources of
guaranteed retirement income. The Retirement Security for Life Act will allow
Americans to better plan and provide for their future and is an essential tool
for future generations."
-- Gus K. West, Chairman of the Hispanic Institute
SOURCE Americans for Secure Retirement
David Mack, +1-202-777-3523, dmack@clsdc.com, or Johanna Schultz,
+1-202-777-3518, jschultz@clsdc.com, for Americans for Secure Retirement
