Scary Stats on Retirement

By the Financial Planning Association

Sometimes you have to motivate clients to start saving; other times you have to scare them. With everyone
living longer these days, clients need to plan now for the rising costs of retirement—especially health care.

With all the financial responsibilities clients face, they often find it tough to put themselves first. But if they’re not making retirement savings a priority, you might show them these statistics:

• Young people aren’t saving for retirement. The Employee
  Benefit Research Institute (EBRI) recently reported that the group of people
  with the longest time frame to save for retirement—young workers between the
  ages of 21 and 24—are the least likely to participate in any kind of workplace
  retirement plan. Only 29% sign up for their retirement plans at work, compared
  with 60% of the workforce between the ages of 55 and 64.
• Single women retire later and have more debt. According to a
  May 2007 MetLife study of mothers and adult daughters and their attitudes about
  retirement, women who are married are more likely to retire than single women.
  Mothers who are married are more likely than unmarried mothers to retire before
  age 55 (26% vs. 6%), and married daughters are more apt than single daughters to
  expect to retire before age 60 (13% vs. 8%) and less likely to retire after age
  65 (28% vs. 43%). Debt is also a problem. Daughters are almost twice as likely
  as mothers to have debt of $25,000 or more (22% vs. 12%).
• Living longer could mean losing Social Security benefits.
  According to Social Security statistics reported by USA Today, there’s a
  41% chance that a 62-year-old woman today will live to be 90, while a man has a
  29% chance. The publication also reported that retirees who signed up for
  retirement benefits at the earliest qualifying age of 62 would lose significant
  benefits due to the longer lifespan—roughly $39,000 in lost benefits for those
  who live to age 90, and up to $54,000 in lost benefits for those who live to age 95.
• Nursing home costs increase. According to the AARP Public
  Policy Institute, the average cost of a nursing home stay is more than $67,000
  per year and exceeds $100,000 per year in some urban areas. Assisted-living
  facilities can cost more than $35,000 per year, while home care agency rates
  average $37 per hour for a licensed practical nurse and $19 per hour for a home
  health aide. For those who cannot finance those costs themselves, long-term care
  insurance might be a worthwhile investment.
• Health costs rising. Don’t ignore out-of-pocket health care
  costs in retirement, even for those with insurance. The EBRI reported in July
  2006 that a couple, both age 65, retiring that month and living to average life
  expectancy could need as much as $295,000 to cover premiums for health insurance
  coverage and out-of-pocket expenses during retirement. A couple that lives to 95
  could need as much as $550,000.
• Retirement savings dwindling. And to underscore the need for
  retirement planning, the EBRI reported last year that many Americans have little
  money put away in savings or investments. Among workers who participated in the
  2007 Retirement Confidence Survey, nearly half reported that the total value of
  their household’s savings and investments—excluding the value of their primary
  home and any defined-benefit retirement plan—was less than $25,000 (49%). Only
  one in 10 workers each reported total savings and investments of
  $25,000-$49,999. Only 14% reported having savings of $250,000 or more.

What does this all mean? For the most part, Americans are unprepared for
retirement, which means we will all be working longer or trying to seek other
means of covering the shortfall we face. In the short run, it makes sense to
take better care of our health and try as much as we can to reduce debt and
other pressures that get in the way of setting aside money. There is no question
that the sooner folks begin to plan and save for retirement, the better off they
will be.