Good News! Retirement Concerns Appear to Decline with Age, But Planning Still Required

With age comes wisdom – and apparently the ability to better handle unexpected expenses, according to the Society of Actuaries (SOA).

In their recent study, the SOA analyzed financial risk management across generations. Chief among their findings? That “the ability to handle unforeseen expenses increases with age, peaking with Early Boomers and then declining for the Silent Generation.”

It’s one of many findings according to the study, “Financial Risk Concerns and Management Across Generations.” The Silent Generation refers to those born between 1925 and 1945.

The SOA based its finding on the fact that 6 in 10 Early Boomers say they could afford a $10,000 expense using their savings or emergency funds. Yet “only 46% of Millennials would use their savings, which is not surprising since they have lower assets and more competing financial priorities.”

Those in the Silent Generation remain vulnerable. The SOA reports that half of them aren’t able to use their savings for an unexpected $10,000 expense.

Financial Risk a Moving Target

Financial life inherently carries risk, and these risks continue for a lifetime. It’s a more complicated set of circumstances for those who are retired, as their primary sources of income will change. And, if they failed to plan for the future, retirees may have limited income options.

Of course, a single unexpected event could present a challenge to all generations. But retirees, including Baby Boomers and Silent Generation, also face other financially related risks, including “living longer than their financial resources, a major long-term care event, investment and inflation risk, and unexpected medical expenses,” according to the SOA report.

Concerned About Medical Costs, But Not Saving for Them

Interestingly, Millennials reported the highest concern over having enough money to pay for healthcare in retirement at 69%. Among late Baby Boomers that issue concerns only 62% of respondents and among early Baby Boomers, 53%. The Silent Generation recorded the lowest level of concern at 49%.

Still, among all ages, only 36% consider saving for future medical costs a high priority.

The study sounds an alarm on preparedness: “Americans in each generation express a high degree of concern about several financial risks they face in retirement, yet their actions often do not align with their concerns. Many are not planning for the long term and are not taking advantage of available strategies to protect themselves against the risks they face, as relatively few use formal risk management approaches or products.”

Achieving a Better Outcome

The SOA has suggestions on managing the various risks that can hinder financial security in retirement. “For those already or close to being retired, it is important to not only be aware of these areas of risk but also to understand how to address them,” according to the report.

Sticking to a budget or a monthly savings plan can help mitigate the risks of unexpected expenses and longevity later in life, the SOA suggests. Millennials score highest (61%) on sticking to a budget, but the Silent Generation beats out all the generations in between (Gen Xers and Baby Boomers) to come in with 53% reporting that they stick to a budget.

The SOA also recommend working to keep debts under control. One-third of all respondents, regardless of age, reported they are making efforts to get their debts under control. According to the report, “Addressing debt, especially those with high interest rates prior to retirement, can alleviate pressure on savings and emergency funds and allow more focus on other risk management strategies.”

Contributing to an employer-sponsored retirement plan is a strategy about 33% of Millennials, Gen Xers, and Late Boomers have adopted. Late Boomers are targeting investments to grow money and produce income both now and in retirement, which coincides with the majority of this segment gearing up for retirement.

Novices Needing Advice… And Action

The study found that few respondents from any generation considered themselves “investment pros.” In a surprising result, members of the Silent Generation, who have been managing investments for the longest period of time, were most likely to describe themselves as investment novices.

“Yet confidence in making financial decisions increases with age, perhaps partially explaining the lower level of concern for the older generations,” the study says.

While across all generations there is high concern around retirement risks, this is often not translated into action to protect against risk, the report says. “Retirees say they will deal with risks if and when they happen. To offset their concerns, retirees are trying to hold on to their assets rather than spending them down.”

Health Expenses Cast a Long Shadow

Retirees younger than 65, who do not yet have access to Medicare and supplemental coverage, may be challenged by medical expenses. “Long-term care is a major risk for which the majority have no plan. Medicaid offers a safety net for individuals whose assets do not exceed specifically stated requirements.”

Rather than risk being at the mercy of the nation’s medical safety net, Americans need to take action, according to the SOA. “It is our hope that the insights this research has provided about each generation will lead to further efforts to educate individuals on the key steps to financial security and enhanced protection against adverse events that pose a threat to that security,” the SOA concludes.

Need Guidance with Creating Risk Management Strategies? 

For more information please contact H.F. Hanes & Associates at 480-607-1346 or 888-416-(LIFE).