18 Jun. 2018 | Comments (0) Share Follow @Conferenceboard
The Society of Actuaries (SOA) recently completed the study The Post-Retirement Experiences of Individuals 85+ Years Old. The research includes in-depth interviews and two surveys, a telephone survey of individuals age 85+ and an on-line survey of adult children who are familiar with their parents’ finances and planning.
These samples are limited to people with financial assets of $400,000 or less. This research offers insights that can help employers better design their retirement and financial wellness programs. The insights are helpful in understanding what retirees are likely to face in the future and in understanding what current employees are facing as they are helping their parents. This article is based on the results from the surveys and builds on my earlier article which built on the interviews. The survey results are generally consistent with the interviews when the same topic was covered in both studies.
As we think about these results, we should remember that the population at this age is primarily female, and many of them are widowed. Survey respondents mirrored the population in that regard. Some of the most significant findings are as follows:
- Elderly Perspective on Finances: Even though many of the survey respondents have less than what traditional retirement planning models say they need for an adequate retirement, most of ages 85+ respondents in the survey are comfortable with their finances. They also tend to be frugal. They have a shorter time horizon than earlier in retirement and are less concerned about outliving assets. This may be partly generation-driven, i.e., as a result of being raised by Depression-era parents, or it may be a result of engaging in fewer activities at that age.
- Financial Management and Cash Flow: The SOA research suggests big gaps in longer term financial planning. Rather, these older Americans have learned to balance short-term income and spending as a critical element of their financial management process. This is consistent with findings from earlier focus groups with retirees retired less than 10 years and those retired 15 years or more and earlier interviews with individuals age 85+. Even though most of the 85+ have incomes of less than $2,000 per month, they usually do not spend more than their income. Most report spending less now than they did in the past, especially on travel and entertainment.
- Use of Assets: Many are trying to preserve assets. Many take only the IRS Required Minimum Distributions plus added withdrawals if needed for substantial emergencies. They often do not have plans to spend assets down.
- Support from Family: This was a very important finding in the survey. Most of the age 85+ respondents have close family (other than spouses) living near them. While they do not get much financial support from children, they often receive support such as assistance with transportation, shopping and household chores. This is particularly true for widows. Children reportedly are willing to step in and offer their time as their parents’ needs increase, but parents may not realize this in advance. Support from family is often not planned for. This is an important issue for employers because their employees are often involved in helping parents.
- Financial Management Support: Most of the 85+ respondents say they do not require help with their finances. When they do need assistance, they are more likely to get it from family than from a professional paid advisor. Where an advisor is used, adult children may help manage the advisor relationship.
- Financial Shocks: The 2015 Retirement Risk Survey study with younger retirees explored financial shocks they faced. Findings from the surveys of 85+ individuals suggest a lesser impact of shocks among this group. The 85+ have adjusted to medical premiums and those with Medicare and Medigap usually don’t experience a lot of unexpected health care expenses. Long-term care is a looming threat, and retirees at all ages seems to underestimate its potential impact. The 85+ are less likely than younger retirees to be focused on expenses such home repairs and dental bills.
- Housing: A large majority of those who participated in the phone survey own their homes and most still live in them. In contrast, only half of adult children reported that their parents were still residing in their homes. Most of the parents who moved found other arrangements that included some support.
- Long-Term Care Preparation: The research suggests big gaps in knowledge about long-term realities, planning and costs as well as what Medicare and Medicaid covers. Despite the relatively modest asset levels of the 85+ samples, a significant number feel that they can save for long-term care by cutting back on spending and putting money away. This seems unlikely to work well for those who experience a major long-term care event. Medicare covers only very limited long-term care, but respondents overestimate what Medicare covers. Unlike the younger sample in the Retirement Risk survey, very few 85+ respondents have plans to sell or borrow from their house to pay for long-term care.
- Long-Term Care Plans Versus Reality: Some of the unrealistic financial expectations of this population may stem from a lack of acceptance of what long-term care may involve some day. Many respondents do not seem to recognize how extensive the support needed can become. While most people would prefer to be cared for at home, once extensive care is needed that becomes much more difficult and eventually home care may not work. Of the quarter of adult children who have parents requiring care, most of those parents ended up in assisted living or a nursing home.
These findings together with the other SOA research tell a compelling and consistent story of the financial views and experiences of people late in life and of their journey through retirement. This reality does not match the views of financial management that underlie much traditional financial planning. The findings will be very helpful to employers who are focusing on what to do in their financial wellness and education programs.
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