I recently came across an informative retirement study conducted by the Society of Actuaries in 2013. It consisted of 8 focus groups based upon income. Here are some of the key points.
- Many people who say that they retired voluntarily actually received a little push. This push took the form of the inability to perform the physical demands of the job, health issues or needing to look after a family member. Thus the distinction between voluntary and involuntary retirement may not be so clear cut.
- The desire to pursue activities and hobbies is not a reason why people retired.
- Most people took Social Security at 62 based on a simple break even analysis.
- They are very aware of their regular income and expenses. They are adaptable when it comes to spending decisions and are accustomed to making trade-offs. Many maintain a separate fund which they use for discretionary spending such as travel.
- Their primary asset management strategy is capital preservation.
- They do not have a plan of systematic withdrawals from their retirement accounts.
- They are very careful about debt and generally do not have large credit card balances.
- When it comes to planning, the focus is on short term rather than the long term. They are most interested in cash flow for the current year and generally do not factor inflation into their plans.
- Health is considered to be the biggest threat to their financial security but they do not explicitly plan for it.
- Risk management is focused on asset preservation, debt minimization and controlling spending. Understanding longevity risk is a huge gap in their knowledge base. This suggests that some may struggle in later years.
- There are differences between men and women. Men appear confident that they can manage any financial situation that arises. Women are more concerned about financial security and worry more about running out of money, long term care and impacting their children. Women are more social and family oriented than men. Women, more so then men, are likely to be caregivers. Women’s concerns seem justified since they generally marry older men.
- People want to hold onto their homes and home equity for as long as possible. However, some plan to downsize.
- Most people are satisfied with their retirement decisions. Some would have liked to have worked longer. Some were lonely, especially widows. However, they find value in their freedom. People tend to think more about the quality of their retirement and not the quantity of their retirement years.
OK, you may be thinking, nice to know but so what? I agree. I read tons of retirement articles. But sometimes I run across one that is valuable. Here’s my take on this one. I like that this study is data driven. It gives me confidence that I can use it as a benchmark as long as my situation is similar (in this case retired). I can compare how I’m doing with others (i.e. the benchmark). This is especially valuable for areas where people are not doing such a great job such as not thoroughly analyzing when to start Social Security, not having a plan of systematic asset withdrawals from their retirement accounts and not including longevity risk in financial planning.
Here’s how I use this study as a benchmark.
Claiming Social Security Retirement benefits
I did much more analysis that a simple break-even calculation.
I actually wrote a post on this in which I list the 4 reasons when it makes sense to take Social Security at 62 and why it may be good to wait.
Systematic asset withdrawal
I don’t follow a specific rule such as the 4% a year rule. However, my retirement plan does show the percent of asset withdrawals per year over my entire retirement planning horizon. I am able to “eyeball” what my withdrawal percentage rate looks like every year and see if I am in the ballpark relative to the 4% a year rule.
When it comes to eventual Required Minimum Distributions from my deferred savings accounts (401k), I am taking steps now to minimize the future tax bite that many people get hit by.
Including longevity in financial planning
Longevity risk is accounted for in the detailed retirement income planner tool that I use from Fidelity. I use age 94 as my end of life plan which enables me to see if and when I might run out of money and also enables me to proactively come up with solutions.
I have looked into Long Term Health Insurance and have decided that it is not for me.
My wife and I are proactively looking into Continuing Care Retirement Communities vs. Aging in Place.
So when I compare myself with the participants, I am satisfied that I am doing an above average job in managing my retirement. And that’s the value that I get out of this study.
I hope that you find some value in it too.