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Introduction: Since 2008, the financial atmosphere around the world has been in constant change. The 2008 downturn experienced in the United States has been followed by a rollercoaster-like recovery period. And this financial turmoil includes worldwide economic chaos, as well as the U.S. debt ceiling crisis in the summer of 2011. To measure the effects of the dramatic financial downturn on retirees’ finances, the Society of Actuaries (SOA), LIMRA, and the International Foundation for Retirement Education (InFRE) have followed up with the respondents of a 2008 study. In 2009 and again in 2011, the three organizations investigated how these same respondents have been reacting to the long-term effects of the 2008 market downturn and the continuing financial upheaval. You may also listen to a live press conference discussion of the results here.

Have retirees’ financial attitudes and actions changed since 2008?

The original 2008 quantitative study of 1,524 retirees aged 55 to 75 with $100,000 or more in household investable assets was conducted in February 2008, prior to the financial downturn. Its intent was to gain an understanding of how retirees with investable assets make decisions about investing and purchasing financial products. The 2008 findings were presented in the report, Will Retirement Assets Last a Lifetime? The motivation for updating this report was to assess how the 2008 financial crisis and economic downturn impacted the original survey participants.

The 2008 participants were re-contacted in April 2009 and posed a subset of the original questions via an online survey. The report, What a Difference a Year Makes, presents the results of the 2009 survey compared with the original 2008 study. The 2011 study was fielded during the end of June, 2011 prior to the culmination of the U.S. debt ceiling crisis. This 2011 report explores the attitudes of 461 retirees who were in the original 2008 and 2009 studies, and the results are contrasted with those of the two prior studies. It should be remembered that this group of respondents is now older and has been retired longer.

Major Themes

Several major themes appear in the 2011 results. Overall, it is evident that the financial crisis that began in 2008 impacted the mindset and financial outlook of these retirees. By 2011, while some of the behavior changes seen in 2009 were still present, feelings came closer to those found in 2008 in other respects. It should be noted that the resolution of the debt ceiling issue and the fiscal problems in Europe leading to market declines and instability in August 2011 took place after the survey was fielded. The 2011 study finds that retirees:

  • Feel more financially secure than in 2009, but not quite as secure as in 2008.
  • Are more confident than in 2009 when it comes to having saved enough for retirement, but are less confident than they were before the financial crisis in 2008.
  • Have not changed their risk tolerance level since 2009 when they were more conservative than in 2008.
  • Have overall less household debt than in 2008 and 2009.
  • Continue to control spending at a proportion more similar to that seen in 2009 than in 2008.
  • Are just as likely to have financial advisors as in 2009.

Observations

Retirees who do not receive enough income from Social Security and/or employer-sponsored defined benefit (DB) pension plans to cover basic living expenses still show little interest in purchasing an annuity.

  • The proportion of retirees who do not receive enough income from Social Security and/or DB plans to cover their basic living expenses without using their savings, has remained consistent (44 percent in 2011, 47 percent in 2009 and 45 percent in 2008). The level of interest in securing more guaranteed life income among these retirees has not changed. The percentage interested in converting a portion of their savings into guaranteed life income remains in the 30% range.

The proportion of retirees not having estimated the number of years their assets and investments might last in retirement continues to increase. In 2008, nearly 3 in 10 retirees had not estimated how many years their assets and investments might last in retirement and an additional 1 in 10 retirees had never thought about it. By 2009, these proportions had increased to 34 percent and 11 percent, respectively. In 2011, a slightly larger proportion of the retirees have not estimated this figure — 36 percent have not estimated how long their assets and investments might last, while 10 percent have not thought about it.

  • The relatively large proportion of retirees not performing this aspect of planning is a concern. Some experts had hoped that current economic conditions would encourage more planning, but that has not happened with this group of retirees.
  • Retirees who calculate how long their money might last are more confident that they have saved enough money to live comfortably throughout retirement than those who do not make this calculation.

The proportion of retirees acknowledging that assets and investments need to last at least 20 additional years continued its downward trend

  • 65 percent (2008) versus 48 percent (2009) versus 45 percent (2011). The change from 2009 to 2011 may simply reflect the aging of the sample, but the consistent differential from 2008 is substantial. Other research shows that many people underestimate this number — which is a major concern because of the potential for retirees to run out of money. Personal health and family history are the most common factors used to estimate how long retirement resources need to last.

The 2011 survey reveals that retirees have been paying down their household debt. Forty-six percent of retirees in the 2011 study have no debt, compared with 38 percent of respondents in 2009. Eleven percent of the retirees currently have $100,000 or more in household debt, down from 17 percent in 2009.

  • In the 2011 study, male respondents are more likely than female respondents to have household debt, while retirees between ages 65 and 70 are much more likely to have household debt than those 71 years and older (61 percent versus 42 percent).
  • Compared with when they first retired, respondents with household debt of $20,000 to $99,000 feel financially less secure at this point in their lives than their counterparts (with less or no debt, or larger amounts of debt).
  • Retirees with low or moderate levels of debt are slightly more risk-averse investors than those with no debt or $100,000 or more in debt.
  • Retirees with moderate or large amounts of debt are much less likely than those with little or no debt to spend money on whatever they wish.

Only a small proportion (6 percent) of the 2011 retirees are somewhat or extremely aggressive investors when it comes to managing their household investable assets, while 22 percent are extremely conservative.

  • Among the retirees without personal financial advisors, 74 percent describe themselves as conservative (somewhat or very), compared with 67 percent of those with advisors. Of those with advisors, 27 percent take a balanced approach to managing their assets compared with 19 percent of those without advisors.
  • Overall, the majority of retirees (93 percent) are somewhat or very confident in their investment management strategies.

Regarding any advice retirees may have received between the beginning of the 2008/2009 market decline and today:

  • Seventy-six percent of retirees with financial advisors follow their advisors’ suggestions all or most of the time.
  • In addition, 2 percent of retirees with advisors have turned complete control of their investments over to their advisors.

The majority of retirees (61 percent) have someone they consider to be their personal financial advisor.

  • Retirees with personal financial advisors have larger amounts of investable assets and higher household annual incomes than retirees without advisors.
  • Retirees with advisors are more likely to engage in some aspects of planning and are somewhat more willing to take investment risk up to a point; but, they are not more likely to aggressively manage household investable assets.
  • Interestingly, compared with when they first retired, a slightly higher proportion of retirees with financial advisors feel financially less secure at this point in their lives than retirees without advisors (29 percent and 26 percent, respectively).

As in many other studies, females have lower household incomes and investable assets than males. But female retirees also have lower levels of household debt than their male counterparts.

  •        Female retirees are conservative and have less risk tolerance.
  • Female retirees are more likely to use financial advisors than are their male counterparts (69 percent and 55 percent, respectively).
  • Among female retirees, nearly half (49 percent) report that Social Security and pensions do not provide enough income to cover their basic living expenses, and they may have to dip into their savings at some point. A lower proportion of male retirees (41 percent) say Social Security and pensions do not cover their basic needs.

Implications for Managing Retiree Savings and Income

Use of financial advisors  retirees are just as likely to have financial advisors today as in 2009 (61 percent).

  • Many retirees follow their advisors’ advice most or all of the time.
  • Retirees with advisors have larger amounts of household investable assets than those without advisors.
  • Nearly 6 in 10 retirees with advisors repositioned equity investments during the downturn, compared with slightly more than 4 in 10 retirees without advisors.

More planning may be needed  — advisors are overlooking a basic aspect of retirement planning if they are not assessing how long their clients’ assets might last in retirement.

  • Slightly more than one third of retirees with advisors have not estimated how many years their assets might last in retirement, while nearly 1 in 10 have never given it a thought. A slightly larger proportion of retirees without advisors have not made this estimation.
  • Since 2008, there has been a 20 percentage-point decrease in the proportion of retirees who think their assets need to last more than 20 years.

Risk levels remain unchanged — retirees may miss out on higher earnings by being risk-averse.

  • When it comes to managing household investable assets, the proportion of retirees classifying themselves as conservative (extremely or somewhat) during the past 2 years has remained unchanged; 70 percent of retirees still say they are conservative — compared with 53 percent in the spring of 2008.
  • A much larger proportion of retirees in 2011 have not changed their risk tolerance level in the past 12 months than in the 2009 study (74 percent and 57 percent, respectively).

Low interest in additional guaranteed income  — retirees who do not have enough income from Social Security and pension plans show little interest in converting assets into guaranteed income. Clients may benefit from a better understanding of guaranteed income products and options if presented information in face-to-face meetings or through simplified marketing materials.

  • Among retirees lacking income from Social Security and pensions to cover basic living expenses, the proportion interested in converting a portion of their savings into guaranteed income to address longevity risk has remained constant since 2008 — around 30 percent — with only 5 percent being very interested in 2011.

Household finances may have stabilized  — retirees have become more conscientious of their household spending and many feel as confident about living comfortably in retirement as they did in early 2008.

  • Retiree levels of confidence in having enough money to live comfortably in retirement dipped between the 2008 and 2009 studies, but are nearly back to the 2008 levels (88 percent in 2008, 79 percent in 2009, and 85 percent in 2011).
  • Retirees continue to control spending at proportions more similar to those in 2009 than in 2008.
  • Retirees have reduced their household debt since early 2008.

To see the complete study, visit The Financial Recovery for Retirees Continues.

Authors:

Sally A. Bryck, LIMRA
Betty Meredith, CFA®, CFP®, CRC®, International Foundation for Retirement Education
Anna Rappaport, FSA, MAAA, Chairperson, Society of Actuaries Committee on Post-Retirement Needs and Risks
Steven Siegel, ASA, MAAA, Society of Actuaries

©2011, International Foundation for Retirement Education, Society of Actuaries, LL Global, Inc.sm All rights reserved.

No part of this report may be shared with other organizations or reproduced in any form without the International Foundation for Retirement Education’s, Society of Actuaries’ or LL Global’s written permission. The opinions expressed and conclusions reached by the authors are their own and do not represent any official position or opinion of the sponsoring organizations or their members. The sponsoring organizations make no representation or warranty to the accuracy of the information.